What is the difference between a guaranteed annuity and a living annuity?

A guaranteed annuity will provide an income that is guaranteed to last for your whole life (and your spouse’s, if applicable), but your heirs won’t be able to inherit whatever is left on your death.

In other words, your capital dies with you.

Typically, you also have no say over your initial income and no flexibility to make changes once you’ve purchased the product.

There are various types of guaranteed annuities e.g. those that provide an income that increases with inflation, those with a level income, and those that depend partially on market returns.

A living annuity allows you to choose your income each year (subject to regulatory limits) and where your money is invested.

Any remaining capital after your death passes to your heirs.

However, in exchange for this flexibility, you take on the risk that you outlive your savings and the risk that your investment returns are poor. This means that your future income could fail to keep up with inflation, or even that you outlive your savings.

This highlights the importance of choosing an investment provider that has a track record of performance and low fees, to ensure that you can get the most out of your living annuity.