Joint life single annuities
Before you buy a lifetime annuity you will need to decide whether you want one designed just for yourself or one that will include your partner. Fortunately these come in a variety of different forms, hopefully suiting everybody’s individual needs.
A single life annuity may be suitable if you don’t have a spouse, partner or any other dependant relying on you for financial support, (for example, they may have their own pension arrangements).
You can usually decide upon how much of you annuity income is paid to your partner when you die. This can be as high as 100%; however, most couples opt for a payout between one 3rd and two 3rd’s of the original annuitant’s income.
The more you choose to be paid to your partner upon your death, the lower the original annuity will be. Some companies may not set up a spouse or partners annuity if they are more than ten years younger than you, so this is something to keep in mind when comparing annuities.
You should ideally start thinking about your annuity 4 months before you have decided to retire, so you have plenty of time to weigh up the market and to get something in place for your retirement.
If you have a partner, then setting up an annuity can become more complicated, due to lots of differing factors.
Whilst more and more women have their own careers these days, it is still the case that many families will only have one half of the couple who have built up a pension. If that person was to buy an annuity for themselves, with the intention of providing for the family, and that person suddenly died, a standard annuity would leave the family with no more payments.
A joint life annuity provides a solution to this potential problem, providing the surviving partner with either all, 2/3rd or 1/3rd of the annuity income for the rest of their lives.
This partner does not have to be your wife or husband. A joint life annuity will continue to pay an income to your spouse, partner or financial dependant after you die. If your financial dependants are your children, this type of annuity will usually pay until they reach a certain age, usually where they would be expected to be financially independent.
You should check whether your partner or spouse is eligible for this kind of payment, as there can be various conditions. For example, if your partner/spouse is more than ten years younger than you, some annuity providers will not allow you to have a joint life policy. It’s also worth noting that some pension funds insist on you purchasing a joint life annuity with certain conditions.
The amount your partner receives when you die usually depends entirely upon you and how much you feel your partner will need in order to be financially stable. Whilst it’s easy to think half will be suitable, it’s worth baring in mind that living in a house on your own costs more than half of what it cost to live as a couple.
Bills won’t half
Council tax for example only decreases to 75% for single occupancy, and the gas bill will remain pretty much the same as you would have to heat the house just as much for one as for two. The age of your partner may also affect how much they receive. For example, the younger they are the lower the amount they are likely to receive as the annuity amount will be paid over a longer period.
Your partner does not have to be your wife or husband. In fact, any partner of either sex may be eligible for a partner’s pension, yet some insurance companies may insist that you can prove that individual’s financial dependency upon you.
As ever, it may be advantageous for you to consult with an IFA in order to better understand all of the options available to you and which option will be best suited to your personal situation.