Guide to Annuities
UK Pensions

Annuity Income Options

Most annuities come with options you can add to the annuity policy at an extra cost.

It is important to note that, except for flexible annuities, these options usually can't be changed once they've been added to your annuity contract.

Common options that can be included in an annuity include:

Annuity option
What it offers
Joint Spouse/Dependent
A joint or dependent annuity continues to a named person when you die. The payments can remain at the same level or reduce to a previously nominated percentage, i.e. a third or a half of your payments.
Level or Escalating payments Income payments can remain the same, i.e. a fixed rate of 3% throughout the life of the annuity (level), or can be linked to the Retail Price Index to increase in line with inflation each year.
Guaranteed Period A normal lifetime annuity stops as soon as you die, but if you select a guaranteed period of between 5 and 10 years your annuity is guaranteed to pay out for that period regardless of when you die. If you are alive at the end of the guaranteed period, the annuity continues to pay until you die at which point the annuity policy stops. 
Lump sum death benefit/capital protection This option guarantees a lump sum payout if you die before age 75. The payout is based on how much you've already received from the annuity, less any costs. These lump sum payouts are currently taxable at 35%.
Overlap Available if you have taken both a joint annuity and guaranteed period option - it enables the annuity payments to transfer to your spouse and still receive the guaranteed payments if you die. Without this option your spouse would have to wait until the guaranteed period is over before starting to receive their annuity payments.

Having additional options can significantly reduce the income you would get from your annuity, so take advice and ensure you select options carefully.

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Guide Contents

What is an Annuity?
When might I need an annuity policy?
Types of Annuities
Pension annuities
Annuity income options
Enhanced and Lifestyle Annuities
Impaired Life Annuities
Annuity Rates
Where can I go to get more help?

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