Annuities – Securing a Lifelong Income

Lifetime annuities offer longevity insurance, providing a retirement income for life. There’s a new post-pension freedoms focus on using annuities as one element of a client’s retirement income package. In light of this, Scottish Widows consider the technical aspects of annuity options.

Main Types of Lifetime Annuity

Standard Annuities

Standard annuity rates align to long-term interest rates, although providers now look beyond the traditional gilts and corporate bonds to back their liabilities. Providers’ rates vary, depending on factors including their mortality experience, financial strength, appetite for risk and whether they’re actively pursuing market share.

Providers take the annuitant’s age at outset into account, but haven’t been able to allow for gender since 21 December 2012.

(All examples are for illustrative purposes only).


Robin has £80,000 to purchase an annuity after taking tax-free cash. Depending on Robin’s age at the outset, choosing an annuity on a single life, level, monthly in arrears, no guarantee basis would secure different levels of monthly income.

Age at outset Monthly income for rest of Robin’s life
60 £280
65 £330
70 £385
75 £482

Enhanced Annuities

Enhanced annuities offer those with medical and/or lifestyle factors which may affect their mortality a higher income than a standard annuity. These factors commonly include smoking, high blood pressure and cholesterol, diabetes, chronic asthma, stroke, heart attack or angina.

Providers use a Retirement Health Form (RHF) to gather the information necessary to provide a quotation. Online underwriting processes mean guaranteed quotations can be produced near instantaneously. A thorough approach to completing the RHF can help ensure that all a client’s conditions are taken into account, maximising their retirement income.

Providers deal with the risk of clients overstating the severity of their condition by using medical sampling of in-force business. An annuitant’s income can be reduced if the provider can’t verify the information given at the outset.

Online underwriting processes mean guaranteed quotations can be produced near instantaneously.

Payment Options for Lifetime Annuities:

Level, Escalating and Index-Linked

With both standard and enhanced annuities, the annuitant has to decide at the outset whether they want a level annuity, or for their income to increase each year. They can opt for escalation at a fixed percentage, or an index-linked annuity increasing in line with, say, RPI or LPI. Escalation and index-linking provide a lower initial income than a level annuity. It’s difficult to predict whether this will offer value for money, although using the Office for National Statistics’ life expectancy calculator provides a starting point.

Find out more at Scottish Widows