Retirement
Lifetime Annuity & Scheme Pension
A guaranteed income payable for the rest of the member’s life, with optional escalation, a guarantee period and a dependant’s pension. Once in payment it cannot be changed.
Ladies View, Co. Kerry · Marco Ober, CC BY-SA 4.0
Who it is for
Individuals at retirement, and occupational scheme members, through a broker
What it does
- Level, fixed-escalation or index-linked income
- Guarantee period of up to 30 years
- Dependant’s pension of 50%, 66.7% or 100%
- Enhanced terms where medical or lifestyle factors shorten life expectancy
The product in full
A lifetime annuity converts a pension pot into an income that cannot run out. The insurer takes the capital and accepts the two risks the member cannot carry alone: that they live much longer than average, and that markets fall in the years they most need the money. In exchange the member gives up access to the capital and the ability to change their mind.
That trade is the whole product, and it is why the shape of the income matters more than the headline rate. A level income is highest at outset and lowest in real terms thirty years later. An escalating income starts materially lower and overtakes the level one somewhere in the second decade. Neither is right in general; which is right depends on how long the member lives, which nobody knows.
Three features soften the irrevocability without removing it. A guarantee period keeps payments running to the estate if the member dies early in the term. A dependant’s pension continues a proportion of the income to a spouse or partner for their life. And enhanced terms recognise that a member with a shortened life expectancy — through a medical condition, or through smoking — should be paid more, not less, for the same capital.
Literature
Product literature is issued to appointed intermediaries. Ask your underwriter, or request it through the enquiry form.
- Key features documentOn request
- Annuity quotation requestOn request
- Medical questionnaireOn request
How it works
What happens, in order
From the first enquiry to the point the cover, the contract or the facility is in place.
The pot and the shape are settled
Capital available, age, escalation basis, guarantee period, any dependant’s pension, and payment frequency. Each of these changes the price.
Health and lifestyle are underwritten
A medical questionnaire, and where relevant GP evidence. A shortened life expectancy buys a higher income, which is why the questionnaire is worth completing carefully rather than quickly.
A quotation is issued and held
For a stated period. Annuity rates move with long-dated yields, so a quotation is a snapshot rather than a standing offer.
The annuity is set up and paid
Monthly to annually, in advance or arrears, for life.
It does not change again
Once in payment the basis is fixed. There is no surrender value and no switch. That permanence is what the guarantee is made of, and it is the reason the decision is taken slowly.
The numbers
A worked example
Illustrative arithmetic, so the shape of the product is visible rather than described. Nothing here is a quotation or a projection.
A £250,000 pot, level against escalating
Two shapes bought with the same capital, at an illustrative rate for a member aged 65. The comparison is the point; the rates themselves depend entirely on the day and the person.
- Pension pot applied
- £250,000
- Option A — level incomeIllustrative 6.0% at outset, and it never rises
- £15,000 a year
- Option B — income escalating at 3% a yearIllustrative 4.2% at outset, and it rises every year
- £10,500 a year
- Difference in year 1
- £4,500 in favour of level
- Option B overtakes option A in
- Year 13
- Cumulative payments by year 25 — level
- £375,000
- Cumulative payments by year 25 — escalating
- £383,000
Illustrative rates, not a quotation. Real annuity rates depend on age, health, postcode, the shape chosen and long-dated yields on the day of purchase. The escalating option costs 30% of the first year’s income to buy protection that only pays off if the member lives into their late seventies.
Level income against 3% escalation
Annual income from the same £250,000 pot, on the illustrative rates above.
View these figures as a table
| Level income | Escalating at 3% | |
|---|---|---|
| Year 1 | £15,000 | £10,500 |
| Year 5 | £15,000 | £11,816 |
| Year 10 | £15,000 | £13,699 |
| Year 15 | £15,000 | £15,882 |
| Year 20 | £15,000 | £18,413 |
| Year 25 | £15,000 | £21,347 |
Suitability
Where the Lifetime Annuity & Scheme Pension fits
The cases it answers, the cases it does not, and what an underwriter needs before quoting.
It is the right answer when
- A member who needs a floor under their essential spending and will not revisit the decision.
- Someone with a medical condition or lifestyle factor that improves the terms.
- A member with a dependant who must keep an income after the first death.
Look at something else when
- A member who may need the capital back — an annuity has no surrender value.
- Someone who wants to keep investment exposure; the Flexible Income Annuity or drawdown is nearer.
- A member unwilling to fix a decision for life — the Fixed Term Income Plan defers it.
What we need to quote
- 1.Date of birth, and the pot available, with the ceding scheme’s details.
- 2.The shape wanted: escalation, guarantee period, dependant’s pension, frequency.
- 3.The medical questionnaire, and consent to approach the GP if enhanced terms are in play.
Questions
What brokers ask us about this product
What does a guarantee period actually guarantee?
That payments continue for that number of years whether or not the member survives them. A five-year guarantee on a member who dies in year two pays the remaining three years to the estate. It guarantees the payments, not the capital.
Why would a medical condition increase the income?
Because the price of a lifetime income is a view on how long it will be paid for. Where a condition shortens life expectancy, the same capital buys more income each year. It is the one part of the process where disclosing more usually helps the member.
Can the annuity be changed once it is in payment?
No. That is the deliberate design, not an oversight: the certainty the member is buying exists precisely because neither side can revisit it.
Is a level income always the wrong answer?
No. A member with other index-linked income, or one who expects to live an average rather than a long life, may reasonably prefer the higher payment now. The crossing point in the chart above is the argument, in both directions.
Request information
Ask us about the Lifetime Annuity & Scheme Pension
The form reaches an underwriter in Dublin. If you are an intermediary, say so and we will route it to the broker desk.