What is a guaranteed income for life?

You can generally choose to receive your income monthly, quarterly, half-yearly or yearly. There are a number of different options for tailoring your income for life to suit your personal circumstances, and further information about these is given below.

If you are an Equitable Life policyholder, and the Proposal goes ahead, the options you currently have will continue to be available.

Taking a tax free lump sum

When you use your pension policy to buy an income for life, you have the option to take a tax free lump sum. You are normally entitled to take up to a quarter (25%) of the money in your pension policy in this way, but if you choose this option, there will be less available to buy your income for life. This is because the amount available to buy your income for life will be reduced by the amount you take as a tax free lump sum.

How your payments will be taxed

The income you receive is generally taxable, in the same way that tax is paid on your income. The amount of Income Tax you pay each year depends on your total income. The pension provider that pays your income for life is required to deduct tax from your income before you receive it, using your personal tax code specified by HMRC.

The range of income options

If you would like to take an income for life, you can tailor your income to suit your circumstances.

• Joint or single life income - your income is guaranteed to be paid until you die, but you can choose to have the income, or part of it, continue to your surviving spouse, civil partner, or a dependant after your death (known as a joint life income for life). If you choose joint life, the amount of income you receive will be lower than if you choose to have your income paid only throughout your lifetime (the single life income for life). However, if you choose single life, and your spouse, civil partner or dependant outlives you, they will not receive any income after your death (although they may do for a limited period if you choose a guaranteed period - see below).
• Guaranteed period – you can choose to have payments continue for a selected minimum number of years from when your income for life starts, even if you die within that period. If you choose this option, you will receive a slightly lower income than if you do not choose it, but if you don’t choose it and you die unexpectedly early, then the income payments would cease immediately (unless you have chosen to receive a joint life income for life – see above).
• Level or increasing income for life - you can choose between income payments that remain level throughout your lifetime, and income payments that start lower, but increase each year. Payments that increase each year, will help reduce the effects of inflation on the value of your income. There are a number of increase options to choose from. If you choose a level income, over time you will find that price inflation means that your income will buy you less.

What happens to your income when you die?

There are a number of scenarios here, depending on your choices at the time you set up your income for life.

If you die before age 75, and you chose a joint life income for life, then the income paid to your surviving spouse, civil partner or dependant will be tax-free. Similarly, if you chose a guaranteed period, and die before age 75 and during the guaranteed period, the payments until the end of the period will be tax-free.

If you die at or after age 75, any person receiving payments after your death will have to pay Income Tax.

Please read about Pension Scams and Pensions Advice.