Types of Annuity

Some annuities guarantee your income for a specific number of years, even if you die before the period is up.

Others offer value protection which ensures any remaining funds will be paid to your dependants if you die sooner than expected.

Once you’ve chosen an annuity, it's permanent and you can’t normally change it at a later date. That means it’s extremely important you make the right choice. Making the wrong choice could reduce your retirement income drastically.

Our annuity experts are here to talk you through the best approach for you.

Pension annuity

The Pension Annuity uses the proceeds of your pension fund to provide you with a guaranteed income for the rest of your life.

Find out more about pension annuities

Pension Income Plus Annuity

The Pension Income Plus Annuity provides a guaranteed minimum income for life, as well as aiming to improve future income with investment returns.

Find out more about pension income plus annuities.

What are my options?

Annuity provider

You have the right to choose who to buy the annuity from. You can also choose what type of annuity to buy or buy one at a later date when you’re ready.

Payment frequency

You can choose how often you want to receive your income: monthly, quarterly, half-yearly or yearly. You can also choose when the money goes into your bank account - at the start (in advance) or the end (in arrears) of each period.

Being paid ‘yearly in arrears’ will give you the highest income, as this gives the provider company more time to invest your funds. ‘Yearly in advance’ will provide the lowest income.

Spouse’s pension (Joint Life)

A Joint Life annuity will pay you an income for the rest of your life. It will then go on to pay an income to your spouse, civil partner, or a dependant for the rest of their life after you die.

Annual increase

You can decide whether your annuity will pay a fixed income or one that increases to protect you against inflation.

A level annuity may provide a very comfortable income today. But in ten or twenty years’ time inflation will reduce its value substantially.
An escalating annuity which increases with inflation will initially provide a lower income, but its value over the years will give you consistent buying power for life.
Alternatively, you can select a fixed percentage increase – say for example 3% - which would provide a consistent annual increase year on year regardless of whether inflation is higher or lower.

Guaranteed period

You can guarantee your annuity for a specific number of years. This means it will continue to pay the income even if you die before the specified period is up. Selecting a guarantee period will provide a slightly lower level of income, but it guarantees that your estate continues to receive the income.

Value protection

Value protection is a way of protecting the value of your annuity in case you die earlier than expected. If you take this option, you can choose to protect a percentage of the fund that was used to purchase your annuity. Then if you die before this has been used up – what remains will be returned to your beneficiaries as a lump sum – less tax of 55%.

For example lets say you chose to protect 50% of your pension fund of £50,000 that what used to purchase your annuity (in other words protecting £25,000), and you were receiving an annuity of £2,000 a year. If you died after 10 years, then we would have paid £20,000 out (£2,000 x 10 years) – leaving £5,000. Less tax at 55% means that £2,250 would be returned to your beneficiaries.

Health and lifestyle

You may be able to benefit from an enhanced or impaired life annuity which pays a higher income if your lifestyle or your health could reduce your life expectancy. Even if you think you’re healthy, if you’re a smoker, overweight or taking any medication it could boost your retirement income.

How much tax you pay depends on your personal circumstances. Please see the Key Features for details of how your annuity payments will be taxed. Any references to taxation are based on our understanding of current legislation and HM Revenue & Customs practice, which can change.

Types of annuity comparison

The table below will help you understand the differences between an LV= Pension Annuity and an LV=Pension Income Plus Annuity.

Please read the key features documents for both annuities for more details – or speak to one of our annuity advisers, who will help you make the best decision for you.

	Aims	Drawbacks
Pension Annuity	To pay you a guaranteed income for the rest of your life, factoring in your lifestyle and state of health. To allow you to make financial choices to get an annuity that meets your needs. To choose an annuity that can provide benefits for your spouse, civil partner or dependants after you die.	If you choose a level annuity or an annuity that increases each year by less than inflation, your income may not keep up with rising prices. Your personal circumstances may change (financial, health or otherwise). If this happens, this annuity may no longer be suitable for you and you won't be able to change it.
Pension Income plus Annuity	To pay you a guaranteed minimum income for the rest of your life. To allow you to make financial choices to get an annuity that meets your needs. To choose an annuity that can provide benefits for your spouse, civil partner or dependants after you die. Offer the potential for a rising income dependent on declared investment returns from our with-profits fund.	If you choose a high starting income there is a greater risk that the investment returns won't be high enough to maintain this level. However, we guarantee it won't fall below the guaranteed minimum income shown in your policy schedule. Your personal circumstances may change. If this happens this annuity may no longer be suitable for you but you won't be able to change it. You do have the option however, to convert this annuity to a non-profit annuity or change your Assumed Investment Return. As this is a with-profits investment this isn't designed for customers who are expected to live less than ten years. These customers would be better off buying another type of annuity.