GUIDES

This content was reviewed and approved by Marc Perry.

A lifetime annuity, also known as an annuity for life, is a type of retirement income product that you buy with your pension pot. It guarantees you a regular retirement income for life, and you agree the amount when you take out a policy. Lifetime annuity options and features vary, and your choice will depend on your personal circumstances and your life expectancy.

You can use some or all of your retirement savings to buy a lifetime annuity. Annuity payments are predetermined based on factors like age and terms of the contract. You’ll decide the amount of annuity, when you receive payments, and whether you require other product options such as payments going to a beneficiary if you die. One of the key advantages of lifetime annuity is that it provides financial security through a continuous income stream for the rest of your life.

How does a lifetime annuity work?

As the name suggests, it offers a guaranteed, regular income from the start of your retirement until the end of your natural life. You’ll invest some or all of your pension pot into an annuity product, from 6 April which you can do once you hit 55 years old (57 from 6 April 2028).

Here's what that involves:

• Exchange your pension pot for guaranteed income – use some or all your savings to buy the annuity.

• Choose options like joint life or inflation protection – these features can provide security for loved ones or help your income keep pace with rising costs.

• Irreversible after a cooling-off period – once set up, you can’t cancel or change the terms.

While a lifetime annuity provides stability and peace of mind, it’s important to consider your financial needs, health status, and long-term retirement plans. Once you’ve bought an annuity, you can’t cancel it or change the amount you receive. Therefore, you should always look at the available options and seek financial advice before taking out a policy.

The total amount you’ll receive from a lifetime annuity depends on how long you live. This could be more or possibly less than what you originally paid for the policy. You can also take out Value Protection to protect all or part of the fund used to buy your annuity if you die.

How much does a lifetime annuity cost?

The amount you’ll pay depends on several UK-specific factors:

• A larger pension pot typically yields a higher income.

• Age, health, and lifestyle influence the annuity rate, often leading to enhanced rates if your health lowers your life expectancy.

• Market interest rates fluctuate over time and affect what providers offer.

• Adding features such as inflation protection, joint life, or guarantee terms generally reduces the annual income.

According to Pensions Age in June 2025, the average annuity rate for a healthy 65-year-old was around 7.72%. So, for a £100,000 pension pot, that could translate to approximately £7,720 annual income.

Tax and allowances

When you buy a lifetime annuity, the income you receive is treated as taxable income under PAYE. Your provider will usually deduct tax before paying you.

You can normally take up to 25% of your pension pot tax-free before buying an annuity, but this is subject to the Lump Sum Allowance, which is currently £268,275 for most people. The more tax-free cash you take, the less you’ll have left to provide an income later.

It’s also worth noting that buying a lifetime annuity does not normally trigger the Money Purchase Annual Allowance (MPAA), so you can still make pension contributions at the same level as before.

Example annuity rates 

To give you an idea of how annuity rates impact your income, here’s a simple example based on different pension pot sizes and rates. These figures are for illustration only, and actual annuity rates vary depending on age, health, and market conditions. 

How much retirement income can you get from a lifetime annuity?

Your income depends on how big your pension pot is, who you are, and the age at which you plan to start retirement. If you’re in poorer health, you may also be entitled to more through what’s known as an enhanced annuity. You can use an annuity calculator to understand a representative amount of what you could get.

Not all providers will offer a lifetime annuity and you should always shop around to find the right rate and provider for you. To do this, you can either seek retirement advice or use a broker on a non-advised basis, who will be able to assist you in finding the best rate and most appropriate product for your needs.

What is the Open Market Option (OMO)?

When you retire, you don’t have to buy an annuity from your current pension provider. Most providers will offer you an Open Market Option (OMO) - the freedom to shop around and purchase an annuity from a provider of your choice. This is important because annuity rates can vary widely, so choosing the right provider could mean a higher income for life.

Why does this matter?

• Even a small difference in the annuity rate can add thousands to your retirement income.

• Some providers offer features like inflation protection or joint life benefits that others don’t, so this gives you more flexibility.

• If you qualify for an enhanced annuity due to health or lifestyle, shopping around for a tailored option could significantly improve your income.

Is a lifetime annuity right for you?

Before you commit, it’s worth speaking to a regulated financial adviser to make sure you’re getting the best deal.

A lifetime annuity might be exactly the financial reassurance and security you need when you retire, but it does have its share of drawbacks you’ll need to be aware of. 

For example, there’s a chance your annuity income could be less than other retirement products on offer, and you won’t have flexibility over how much you receive from your regular payments after you’ve taken out a policy. However, other retirement products may not last as long, and you may run out of money before you pass away. Not only that but if you pass away soon after purchasing an annuity, you and your loved ones might not get the full value owed.

You should always decide whether a lifetime annuity is right or wrong for you before buying an annuity.

The other types of annuity products available

Lifetime annuities are ideal if you want a guaranteed income for the rest of your life. Here are some annuity types you might find:

Enhanced annuity

If you’re in poorer health, live by certain lifestyle choices or have a reduced life expectancy, you might be eligible for an enhanced annuity which could be more suited to your circumstances. You’ll typically be paid at a higher rate because of your medical conditions such as diabetes, high blood pressure, smoking or overall health. What’s more, an enhanced annuity still guarantees an income for life.

Fixed-term annuity

You might want to maximise your pension savings by receiving an income for a fixed period. Depending on the provider, you could be guaranteed an income for between one and 40 years, with the option to add a guaranteed maturity value too. With a fixed-term annuity, your income will stop at the end of the agreed term and there’s no guarantee that the maturity value will be sufficient to generate the same income for the remainder of your life.

How else can you top up your retirement income?

You don’t have to be left with just one form of income when you retire, you can have a combination. Alongside your lifetime annuity, you can also claim a pension whilst withdrawing from savings or while continuing to work. There are many ways you can receive an income in retirement. These include:

• State Pension (if you’re eligible).

• Workplace pension, such as defined benefit or defined contributions schemes (if you’re eligible).

• Private pensions, such as SIPPs (self-invested personal pensions).

• Pension transfers and consolidations.

• Annuities.

• Pension income drawdown schemes.

• Easy access savings account.

• Lifetime ISAs (you’ll need to have set this up between the ages of 18 and 40).

• Stocks and shares.

With so many options available, it can feel overwhelming. Fortunately, help is never far away. If you want expert advice to guide you through retirement, why not get advice from a professional? They normally offer non-judgement and expert advice when it comes to retirement, navigating you through the technical jargon.

Lifetime annuity scams

When you’re considering a lifetime annuity, it’s important to stay alert to scams targeting pension savers. Fraudsters often pose as advisers or providers offering “better annuity rates” or “exclusive deals”. Here are some warning signs to look out for:

• Unsolicited contact, such as cold calls, emails, or texts, claiming they can get you a higher annuity income.

• Pressure tactics such as being rushed into a decision or being told you’ll “miss out” if you don’t transfer your pension immediately.

• Unrealistic promises such as claims of high returns with no risk or offers to unlock your pension before age 55.

If you’re approached unexpectedly, don’t share personal details or transfer any money. Always speak to a regulated financial adviser before making any decisions. Further information on pension scams is available on our financial crimes page.

Who should you speak to about a lifetime annuity?

Retirement advice specialists, or sometimes financial advisers, can help you when purchasing a lifetime annuity. Whether you’ve got a few questions you want answered, or you know it’s the right product for you, they’ll take you through the process and can set it up for you.

At LV=, our retirement advice service is on hand to help you with any burning questions you have about your retirement plans. From the first conversation, we aim to understand what you want to achieve from your retirement. We’ll view your pension options and will scout for products that could work for you. If you choose to take our advice, we’ll charge a fee, but this will cover any specialist advice you require as well as product set-up.

Get your annuity from a trusted provider

If you’re looking for an annuity, or perhaps retirement advice, you can count on us to deliver. Whilst we don’t currently offer lifetime annuities, we can support you in finding the right product for you. We encourage everyone who speaks to us to shop around the market, and find the best annuity for you and your retirement. Get in touch today or request an annuity quote.

Lifetime annuity FAQs

Can you change your mind about a lifetime annuity?

No, if you’ve bought an annuity, you won’t be able to change your mind when you start receiving your income. That’s why it’s important to understand if it’s right for you before you purchase one. Some policies may have a 30-day cooling-off period – so you may be able to cancel or change your annuity, but only for a short period.

When does a lifetime annuity stop?

A lifetime annuity can stop when you pass away as you can’t outlive lifetime annuity payments. However, if you have a joint life annuity, the income can pass onto your chosen beneficiary. Guarantee periods and value protection are other options that allow your beneficiaries to receive an income or a lump sum after you die.

What happens to your pension when you buy an annuity?

When you decide to buy a lifetime annuity, the amount you choose to use is cashed in by your pension scheme and paid directly to your chosen annuity provider. This can be all of your pension fund or just part of it, depending on what your pension allows.

If you haven’t accessed your pension before, you will normally have the option to take up to 25% of the fund used to buy the annuity as a tax free lump sum.

Once the annuity is set up, your annuity provider will start paying you a guaranteed income for life, along with any death benefits you selected. It’s important to note that the money used to buy the annuity cannot be accessed again by you or your beneficiaries - it has been converted into a lifetime income instead.

Because buying an annuity is usually irreversible, it’s a good idea to speak to a financial adviser to understand your options and make sure the choice is right for you.

What if you want to access your money more flexibly?

If you want more access to your money, an annuity probably isn’t right for you. You might want to consider income drawdown, which allows you to take what you need from your pension.

Will I pay tax on annuity income?

Yes. Annuity payments count as taxable income under PAYE. Your provider will usually deduct tax before paying you. You can normally take up to 25% of your pension pot tax-free before buying an annuity, subject to the Lump Sum Allowance (£268,275 for most people). 

How often will I get paid?

You can choose monthly, quarterly, half-yearly or annual payments. Payments can start immediately (in advance) or after your chosen interval (in arrears). For example, a monthly annuity paid in arrears starts one month after setup.