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Planning how to turn your penson savings into a dependable income can feel overwhelming, especially with so many choices available. Annuities remain a popular option because they offer something many people value in retirement: certainty.
Whether you want income for life, protection for a partner or flexibility for the years ahead, understanding the different types of annuity can help you decide what fits your plans best.
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A lifetime annuity is the most common type of annuity purchased. A lifetime annuity pays a guaranteed income for the rest of your life.
A lifetime annuity can be level or escalating.
Lifetime annuities are best suited to people who value financial certainty in retirement, providing a guaranteed income. They give people confidence their living costs will be covered for life, says Cowell.
“Lifetime annuities remain particularly attractive to people who prefer a ‘set and forget’ approach to retirement income, and who may also want to provide for a partner or dependant after their death,” he adds.
A joint life annuity is like a lifetime annuity, but it pays a regular income for two people, usually a couple.
The income typically starts with one person. After their death, payouts are made to the surviving partner, often at a reduced percentage, such as 50% or 66% of the original amount.
While the income is usually lower than a single-life annuity, it can provide valuable financial security for a spouse after their partner’s death.
Nick Flynn, retirement income director at Canada Life, says the second life or joint annuitant needs to be selected at the outset. The survivor’s payout can be specified and could be anything from 1% up to 100% of the first life’s pension.
“The more that is provided for the dependant, the lower the first life’s pension is. So, it’s a careful balance between what is needed now and what the surviving dependant may need in the future,” he says.
A joint-life annuity is ideal for couples who want financial security for both partners – but they can also be used for dependants, friends or family members who share financial responsibilities.
It ensures that when one person passes away, the joint annuitant continues to receive an income. “Joint life annuities have traditionally been purchased to protect the surviving spouse or partner following the death of the annuitant, but today they are often used with dependants of almost any type,” says Flynn.
"Joint life annuities have traditionally been purchased to protect the surviving spouse or partner following the death of the annuitant, but today they are often used with dependants of almost any type."
A fixed-term annuity pays an income for a set number of years, usually five, 10 or 15 years. Payments then stop.
Many fixed-term annuities come with a lump sum paid at the end of the term (the ‘maturity value’). This adds flexibility, allowing retirees to reassess their options later. Carolyn Jones, retirement director at Scottish Widows, says your options can be flexible when your annuity matures.
“Depending on market conditions and personal circumstances, you might choose to purchase another annuity (potentially at a better rate due to age) or move your funds into a drawdown arrangement for more control over withdrawals.”
A fixed-term annuity is ideal for retirees who want certainty now but the flexibility to keep their options open further down the line.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says a fixed-term could be of benefit to someone who needs a guaranteed level of income until they receive their state pension, for instance.
“It could also be useful if you wanted to cut down your working hours but needed to receive a certain level of income. As the money is paid out over a specified period of time, it gives you flexibility to make different choices regarding your retirement income later down the line as your circumstances change.”
Annuity providers ask detailed medical and lifestyle questions to assess your health and life expectancy. An enhanced annuity offers a higher rate of income to people who have health conditions or lifestyle factors that mean they have a shorter life expectancy than average.
Some providers may ask for GP reports or additional medical evidence to confirm your details before offering an enhanced rate.
If you’re a smoker, or if you have a condition such as high blood pressure or cholesterol, diabetes, chronic asthma, stroke, heart attack or angina, you should definitely look into whether an enhanced annuity could get you bigger payments.
Jones says: “You would need to complete a Retirement Health Form (RHF) and disclose all conditions to allow providers to give a more accurate maximum income. Enhanced annuities can make a substantial difference in retirement income, especially for those with qualifying conditions,” she adds.
Buying an annuity means exchanging some or all of your pension savings for a guaranteed income for the rest of your life. Payments can be monthly, quarterly, half-yearly or yearly, and they are liable for income tax.
Annuity rates – which affect how much income you receive from your pot – are influenced by factors such as your age, pension size, and the wider economic climate.
In the past, buying an annuity was the default option for people with defined contribution pensions. Since the pension freedoms changes in 2015, there are now other ways to access your retirement savings – such as pension drawdown, which have become more popular.
You can convert all your pension savings into an annuity – or combine an annuity with drawdown, or just use drawdown.
The total value of annuity purchases rose by 4% in 2025, according to the Association of British Insurers (ABI). Although there was a slight fall in the number of annuities sold, compared with 2024, down 2% to 87,600, people were using larger pension pots to buy them. This may have been partly due to concerns about inheritance tax on unspent pension pots from 2027.
Pete Cowell, head of annuities at Standard Life, says annuities suit people who want income certainty in retirement over the flexibility of accessing their savings as needed to meet their income requirements. “They may also appeal to those who aren’t comfortable with taking any investment risk with their pension pot.”
Every situation is different and it’s important to understand your options. Speaking to a financial adviser can help you choose the best way to make the most of your pension savings.
It’s also important to shop around – you don’t have to buy an annuity from your pension provider. You might be able to get a better rate elsewhere.
Annuities can provide a reliable income in retirement, but they are not suitable for everyone. An annuity might not be the right choice if you have a short life expectancy, may change your mind, want to keep your money invested, or expect your income needs to change significantly in the future.
Saga has partnered with HUB Financial Solutions, who can help you find the right annuity for you from the whole of market. If you take out an annuity using their service, Saga Money will earn a commission.
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