Buying a Joint Life Annuity

What is a Joint Annuity Pension?

When you buy an annuity, you swap all or some of your defined contribution (also known as money purchase) pension for a regular income for the rest of your life. For this reason, most annuities sold on the market today are known as lifetime annuities because they will provide you with a pension income until you pass away.

You can choose when you receive your annuity income: monthly, quarterly, biannually or annually. Pick the option that bests suits you and your ability to budget in retirement.

Remember, when you buy an annuity, if you pass away in the early years of the contract, you’ll likely get less back in income than you paid in. This said, if you live for a long time after buying your annuity, you’ll continue receiving an income regardless of the fact that you may end up taking more in income from the annuity company than you originally paid in from your pension.

How Does a Joint Annuity Work?

While a single annuity covers you for the rest of your life, a joint annuity is typically paid to your husband / wife / civil partner after you pass away for as long as they live. However, they can sometimes be paid to a dependent child, usually until that child is aged around 23, depending on the rules of the annuity provider.

A joint annuity can be a way of ensuring your partner receives a pension after you pass away. It’s particularly useful if they don’t have much in the way of retirement provisions of their own.

As these annuities are based on the life of two people — and typically the second person is a spouse / civil partner — joint annuities are known by a number of different names, including:

• Survivor’s annuities
• Widow’s pensions
• Spouse’s annuities.

Annuity Options

• Level or escalating
  A level annuity means your income will remain fixed over time, potentially therefore being eroded in real terms by inflation. An escalating annuity will rise each year in line with consumer prices. Escalating annuities typically pay a lower amount initially to make up for the fact it rises with time.
• Guarantee period
  An annuity with a guarantee period will continue paying out the full annuity for the rest of the guarantee period if you die sooner. So if you had a 10 year guarantee period and died after 5 years, your annuity would continue paying out as a survivor’s pension in full for a further five years.
• Enhanced annuity
  If you or your partner are ill, you may qualify for an enhanced annuity. These are annuities that will pay you a higher initial income because you’re ill with a compromised life expectancy or you smoke. Enhanced annuities are available for couples even when only one partner has a compromised life expectancy. In this instance your annuity rate might be slightly lower than if you bought a single enhanced annuity, but it would still be above the annuity rate typically offered for a joint annuity underwritten on a healthy couple.

What Happens to an Annuity on Death?

How an annuity is taxed when you die will depend on the age you are at death. If you die before the age of 75, the income for your dependants will typically be free from income tax.

If you die after the age of 75, your loved ones will usually have the annuity taxed as income in the normal way. Inherited annuities, just like other inherited pensions, are generally free from inheritance tax.

It’s possible to have a joint annuity with a guarantee period. If you choose this option, you might want to consider an annuity overlap. This can significantly boost the survivor’s pension for the remainder of the guarantee period.

If the original pensioner dies within the guarantee period, an annuity overlap allows both the joint survivor’s pension and the full annuity to be paid for the remainder of the guarantee period. Without the overlap, the survivor’s pension would only kick in once the guarantee period ended.