Single Life Annuity v Joint Lives Spouse Annuity

Published / Last Updated on 15/04/2024

At retirement, you usually have a choice with your investment linked money purchase pensions such as Personal Pensions, SIPPs, and Workplace pensions to

  1. Take a 25% lump sum or not.
  2. Remaining 75% to invest in a flexible drawdown scheme that can increase or decrease in value, and you draw out as much or as little as you want, whenever you want.
  3. Remaining 75% to invest in a lower risk pension annuity.  A guaranteed income for the rest of your life (and your spouse/civil partner’s life if you choose a joint life annuity).

We have highlighted many times on this website that pension annuities are like buying a car.  You have lots of options such as metallic paint, alloy wheels, sat nav, phone charging, electric, hybrid, diesel or petrol.  Depending upon the options you select will dictate what the cost of the vehicle is.

This is the same with buying an annuity with your pension fund.  You have options for:

  • Level or increasing payments.
  • Fixed term or for life.
  • Single life or joint lives.
  • Death guarantees at 5 years or 10 years.
  • With or without proportion.
  • In advance or in arrears (just like your pay packet).

This video concentrates on the debate of a single life annuity versus a joint lives annuity. 

The usual issue with annuity is that premature death benefits are not that attractive with annuities and certainly after say the end of a 5-year or 10-year guarantee period, if you then die, there is nothing more for the pension firm to pay out other than any balance up to 5 years or 10 years’ worth of annuity payments.  Given that annuities are usually paid out for life, if you pass away prematurely, it can be a huge windfall for the pension company.

This may be acceptable if you are single but if you are married/civil partners you may wish to make sure your partner is financially secure should you pass away early.  This is when you may choose to have a joint lives annuity rather than single life.

Costs of a Joint Life Annuity v Single Life

Example:  Male age 65, non-smoker, £100,000 to buy an annuity.  Has a spouse, 3 years younger, non-smoker.

  • Single Life level annuity rate 6% = £6,000 pa.  Surviving spouse’s pension on death = £0 pa.
  • Joint lives level annuity rate 5.4% pa = £5,400 pa.  Surviving spouse’s pension on death = £2,700 pa.

You should work on a cost base or around 10% lower annuity if you select a spouse’s survivor joint life annuity.

Things to consider when looking a single life or joint lives annuities.

  • Age and life expectancy.
  • Smoker/non-smoker and health status.
  • Hereditary illnesses and bloodline.
  • Do you need higher income today?  Will your surviving spouse be financially secure with or without any spouse’s pension on your death.

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