Intermediate

Types of Annuities

10 min read Last updated: February 2025

Overview of Annuity Types

Understanding the different types of annuities available in the UK is crucial for making an informed decision about your retirement income. Each type has its own features, benefits, and considerations.

Lifetime Annuities

The most common type of annuity, providing guaranteed income for life:

Single Life Annuities

  • Pays income until death
  • Typically offers highest initial income
  • No spouse/partner protection
  • Best for single people or those with independent partners

Joint Life Annuities

  • Continues paying to surviving spouse/partner
  • Lower initial income than single life
  • Choose percentage of income for survivor (50-100%)
  • Provides family security

Enhanced Annuities

Designed for those with health conditions or lifestyle factors:

  • Health Conditions: Various medical conditions can qualify
  • Lifestyle Factors: Smoking, obesity, occupation risks
  • Higher Rates: Can offer significantly better income
  • Medical Assessment: Required for qualification

Did You Know?

Up to 60% of people could qualify for an enhanced annuity, but many don't check their eligibility.

Investment-Linked Annuities

For those willing to accept some investment risk:

  • Variable Income: Payments linked to investment performance
  • Growth Potential: Opportunity for income to increase
  • Minimum Guarantee: Floor level of income protection
  • Higher Risk: Income can fall as well as rise

Fixed-Term Annuities

Temporary annuities for specific periods:

  • Set Duration: Usually 5-10 years
  • Maturity Value: Guaranteed lump sum at end
  • Flexibility: Review options at end of term
  • Bridge Gap: Useful for phased retirement

Level vs Escalating Annuities

Choose between fixed or increasing payments:

Level Annuities

  • Higher initial income
  • Fixed payments for life
  • No protection against inflation
  • Most popular choice

Escalating Annuities

  • Income increases over time
  • Fixed rate or RPI/CPI linked
  • Lower initial income
  • Protection against inflation

Additional Features

Optional features to consider:

  • Value Protection: Return of unused capital
  • Guarantee Periods: Ensure minimum payment period
  • Payment Frequency: Monthly, quarterly, or annual
  • Payment In Advance/Arrears: Timing of payments

Choosing the Right Type

Consider these factors when selecting:

  • Health and lifestyle conditions
  • Attitude to investment risk
  • Need for flexibility
  • Importance of inflation protection
  • Family circumstances

Important Consideration

Once set up, most annuities cannot be changed or cancelled. Take time to choose the right type for your circumstances.

Next Steps

To help with your decision: