How does a joint-life annuity compare with a single-life one?

01 What you are buying

A joint-life annuity continues paying after your death to a named partner, at a percentage you choose — commonly 50%, sometimes 100% or two thirds. The payments continue for the survivor's lifetime, and the percentage is fixed at purchase along with everything else.

The insurer prices it on two lives instead of one, so the expected payment period is longer and the starting income is lower. Around a tenth less for a 50% benefit is a common order of magnitude at similar ages; a much younger partner costs considerably more, because the expected tail is longer.

It cannot be added later, changed later, or redirected to a different person. Divorce does not revoke it and a new partner cannot be substituted, which is a genuine consideration for anyone whose circumstances are unsettled.

Source: MoneyHelper: guaranteed retirement income (annuities)

02 The number that actually decides it

Model the survivor's income, not the annuity. After the first death the household loses one State Pension entirely, keeps the survivor's own pensions, and keeps whatever share of the annuity was purchased. For most couples that is a fall of well over half, not of half.

Set that against the survivor's spending, which does not halve. Housing costs, council tax, insurance, heating and car running costs are largely fixed per household rather than per person, and the usual estimate is that a single person needs around two thirds of a couple's income to maintain the same standard of living.

If the survivor's income after the first death is below that level, the joint-life benefit is not an optional extra — it is the thing preventing a shortfall. A tenth off the starting income is a small price for closing it.

On the defaults above, the worked example shows £20,198 a year. Single-life leaves the survivor £12,548; joint-life at 50% leaves £20,198, for £1,700 a year less while you are both alive.

Source: Retirement Living Standards

03 Guarantee periods are a different product

A guarantee period continues the full income for a fixed number of years from purchase — five or ten typically — whether or not you are alive. It is cheaper than a joint-life benefit and it is not a substitute for one: a ten-year guarantee on an annuity bought at 65 protects a partner who is widowed at 70 and does nothing for one widowed at 80.

Value protection is a third option, returning the balance of the original premium less payments made as a lump sum on death. It protects capital rather than income, which suits an estate objective rather than a survivor-income objective.

The three answer different questions. Joint-life protects a partner's income for life; a guarantee protects against dying very soon after purchase; value protection protects the estate. Only the first solves the problem this post is about.

A fourth structure exists and is rarely offered unprompted: a joint-life annuity that reduces to two thirds rather than to half. It costs more than the 50% version and less than 100%, and for a household whose fixed costs are a large share of spending it is often the shape that actually matches the need. Ask for it by name, because a standard quotation will show you 50% and 100% and nothing between them.

Source: FCA consumer information

04 When single-life is defensible

Where the surviving partner has enough income of their own, a single-life annuity is a reasonable choice, and it is the case Tom's household was in. A full State Pension plus a workplace pension of their own can be sufficient, particularly where the home is owned outright.

It is also defensible where the partner is significantly older, or in poor health, since the expected period of survivorship is short and the reduction buys little. And where there is no partner at all, the question does not arise — though a guarantee period may still be worth its small cost.

What is not defensible is choosing single-life because the quotation showed a bigger number. The larger income is the whole point of the product and it is not evidence that it is the right one.

Source: The new State Pension

05 Getting the quotation right

Ask for both shapes on the same terms, on the same day, from the same panel of insurers. A single-life quote from one provider against a joint-life quote from another tells you nothing, because the underlying rates differ as much as the shapes do.

Then apply the survivor test to the joint-life figure rather than to the difference. The question is not whether 10% is worth paying; it is whether the household can absorb the first death without it. That is a spending question, and it is answered by looking at both partners' income sources side by side.

Source: Plan your retirement income