What is a joint life annuity and is it worth it?

Full answer

When you convert pension savings into a guaranteed income, you buy an annuity from an insurer. A single life annuity pays only while you are alive and stops on your death (subject to any guarantee period). A joint life annuity continues paying after the first death, providing an income for a named survivor - typically a spouse, civil partner or financial dependant. You choose the survivor's percentage when you set it up, commonly 50%, two-thirds or 100% of your original income. The trade-off is that covering two lives costs more, so the starting income on a joint life annuity is lower than on an equivalent single life annuity for the same pension pot. Worked illustration of the mechanism: if a single life annuity would pay GBP 6,000 a year and you instead choose a joint life annuity with a 50% spouse's pension, your own income starts lower - say in the region of GBP 5,400 - and on your death your partner continues to receive 50% of the income for the rest of their life. The exact rates depend on your age, health, gender-neutral pricing, interest rates and the options chosen, so request live quotes rather than relying on any fixed figure. Annuity income is taxable as pension income through PAYE and counts towards your personal allowance and tax bands. Tax treatment on death depends on your age at death: broadly, payments after death before age 75 can be tax-free to the survivor, while after 75 they are taxed as the survivor's income - check current rules as they can change. A joint life annuity suits couples who rely on the income and want to protect a surviving partner; a single person, or someone leaving a separately provided-for spouse, may prefer the higher single life income. Use a pension calculator to compare the income trade-off against your retirement needs.

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