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When you approach retirement, you will need to decide whether to invest the two thirds of your pension fund or retirement annuity in a living or a life annuity. But with so many financial service providers offering a host of life, living and hybrid annuity products, it may be difficult to know which annuity product gives you the best possible retirement income that is suited to your individual circumstances.

Life Annuities

Traditional life annuities are designed to offer pensioners security by providing a guaranteed income for life that never decreases. They are available in two basic forms: with-profit annuities, and non-profit annuitiesWith-profit annuities (such as Just’s Lifetime Income product) have an underlying investment component that determines their increase potential. Non-profit annuities, such as inflation-linked or fixed escalation annuities, provide a guaranteed increase either equal to inflation or to the selected fixed escalation rate.

Living Annuities

If you are looking for the flexibility to adjust your annual drawdown rate (and thus your monthly income amount) to match changing income needs, living annuities offer a more flexible option, allowing drawdown rate adjustments every year of between 2.5 and 17.5%.

The risk associated with living annuities is that they do not guarantee a retirement income for life, and there is a chance that you may eat into your capital too quickly – especially during times of poor market performance. This means that you may run out of money before you die.

Income Legacy

Both life and living annuities allow you to leave a financial legacy. Any remaining balance from a living annuity is automatically passed on to beneficiaries, whereas in a life annuity, you can opt to include additional income legacy features to provide for your spouse and family in the event of your early death.

Your retirement objectives

Life Annuity

Living Annuity

Blended Annuity

Flexibility to increase or decrease withdrawal rate

✖️

✔️

✔️

Guaranteed income that will never decrease

✔️

✖️

✔️ Life annuity component

Income for life

✔️

✖️

✔️

Protection from inflation

✔️

✖️

✔️ Life annuity component

Ability to leave a financial legacy

✔️ Income legacy

✔️ Capital legacy

✔️ Income and capital legacy

Enhanced income subject to medical underwriting

✔️

✖️

✔️ Life annuity component

A Blended Retirement Option

One way to combine the best of both living annuities and life annuities and overcome their disadvantages is to use both. At retirement, current regulations allow retirees to split part of their pre-retirement savings between multiple living annuity and/or life annuity products, with one or multiple insurers.

A unique legal structure, a blended annuity enables you as the annuity holder to include a guaranteed life annuity as one of the investment portfolios within a living annuity.

By purchasing a blended annuity, you can weigh up your wants and needs, then decide how much to allocate to the guaranteed component and how much remains flexible. Blending also allows you to optimise your income over time, balancing the risk of outliving your savings by adding to the guaranteed component when required.

Do you need more information?

Consider seeking advice from a qualified financial adviser. Contact us to request the details of an adviser in your area or to find out more about our offering.