A joint life annuity guarantee period keeps payments going for a set time if you die early; value protection pays a lump sum instead. Here is how each fits.
A joint life annuity already promises something at death: an income for your partner. A guarantee period and value protection are separate extras, and they pay out in different ways. Some providers let you combine them with a partner's income and some do not, so the label on a quote needs reading with care.
Pension Wise, a MoneyHelper service, gives free impartial guidance from age 50. Wondering how a partner's income and a guarantee would sit together for your household? Weighing that up with an FCA-authorised adviser is free of charge, and the form on this page gets things moving.
Three promises that are easy to mix up
MoneyHelper explains that an annuity "will usually stop paying when you die", unless you take a joint-life annuity and/or add optional protections. It separates the pieces like this:
- Joint-life: "pays a portion of your income to your dependants after you die".
- Guarantee period: "pays your beneficiaries an income for up to 30 years after you die, or a lump sum of that value".
- Value protection: "pays your beneficiaries a lump sum if your annuity has paid out less than it cost you when you die".
The first pays a person for the rest of their life. The second pays for a fixed stretch of time whoever is alive. The third pays a sum that shrinks as your income is paid. Ask for the wording in the provider's key features. The wider picture of what happens to an annuity at death is in annuity death benefits, and the basics of the partner's income are in how a joint life annuity works.
How a guarantee period works with a partner's income
A guarantee period promises a minimum number of years of payments. Standard Life's key features say that if you die within it, "payments will continue to be paid to a beneficiary until the end of the Guaranteed Period", with a choice of up to 30 years. MoneyHelper's example: with a ten-year guarantee and a death after seven years, the beneficiary receives the remaining three years either as a lump sum or as regular income.
On a joint life annuity, MoneyHelper says you can normally choose for the guarantee payments to run "at the same time, called overlap", or "after the guarantee period has ended, called without overlap". Which suits depends on who needs the money and when; annuity overlap explained works through it.
The guarantee has an end date. Once the period is over, MoneyHelper says, "your annuity will still stop if you die after a guarantee period has ended". On a joint life annuity, the partner's income carries on after the guarantee period only if the partner is still alive to receive it.
How value protection works, and where a partner's income gets in the way
Value protection is about money paid in, not years. Standard Life describes it as designed "to pay a lump sum to a beneficiary if you die before receiving a specified proportion of your purchase price back". MoneyHelper gives a worked case: on a £50,000 annuity, with £30,000 received in income by the time of death, the beneficiary would receive £20,000. If you have been paid more than the amount you chose to protect, Standard Life says nothing is paid.
You do not have to protect the whole price. Standard Life lets you protect up to the full amount you paid, or a smaller value such as half, and Scottish Widows says customers usually choose 100% or 50%.
The catch for couples is that value protection and a partner's income are not always allowed together. Standard Life says you cannot choose Value Protection if you have already asked for a Dependant's Income to apply, so there the choice is a partner's income or a lump sum, not both. Aviva lets you combine its options, but says optional value protection pays a lump sum when you die "if there are no annuity payments continuing to a dependant". Whether the provider you have in mind lets a partner's income sit alongside value protection is a point an adviser will clear up for nothing once you complete the form.
The same options as three providers print them
Names and rules differ between providers, which is why a quote's wording matters. This table shows what three providers' own documents say about the options, not a rule for every annuity.
| Provider | Guarantee period | Value protection | Can they be combined? |
|---|---|---|---|
| Standard Life | Up to 30 years | Protect up to the purchase price | Not value protection with a guaranteed period or dependant's income |
| Aviva | Usually one year as standard; a longer one up to 30 years can be chosen | Up to 100% of the price, less payments made; paid only if no payments continue to a dependant | Options can be combined, but optional value protection ends the standard one-year guarantee |
| Scottish Widows | A Guaranteed Payment Period of up to 30 years | Only through an adviser or intermediary | Either a guaranteed period or value protection, not both |
Sources: Standard Life Key Features of the Pension Annuity, Aviva Pension Annuity key features (AN15036), and Scottish Widows' Pension Annuities Explained page. Terms can change, so check the version sent with a quote.
What the extras cost, and when they pay nothing
Neither extra is free. MoneyHelper says you will "usually get a lower income for each protection you add on", because the income is more likely to pay out for longer. Standard Life adds that the longer the guarantee period, or the more you protect, the more the income falls. Each option also has to be chosen up front: MoneyHelper says protections are picked "when you first take out the annuity", and Standard Life says the options cannot be changed once the cancellation period has expired.
The extras can also pay little or nothing. A guarantee period pays only while it runs. Value protection pays nothing once your income has reached the protected amount. And MoneyHelper points out that "a joint-life policy will not pay out if your dependant dies before you".
Weighing these against a partner's needs, other pensions and your health is personal. How an annuity compares with leaving money invested is covered in is an annuity worth it, and how a health condition can change the income is in enhanced annuity rates.
Guarantee period and value protection: common questions
Is a guarantee period the same as a cash refund or return of purchase price?
Not necessarily. In MoneyHelper's terms, a guarantee period keeps paying for a set number of years, while value protection pays a lump sum if you die having had less in income than the annuity cost. Labels such as period certain or cash refund turn up on some quotes, so ask the provider which of the two a label means.
Is annuity value protection worth having?
It matters most to someone worried about dying early. Standard Life points out that someone who dies in the early years may have received less in income than the annuity cost, and offers value protection or a guarantee period for that concern. It costs income every month you live, so it is a trade-off to weigh, not a default.
Can I have both a guarantee period and value protection?
Not necessarily. Scottish Widows says you can take either one but not both, and Standard Life does not allow value protection once a guaranteed period has been chosen. Another provider may differ.
Can I add a guarantee period after the annuity has started?
Generally not. The options are set at the outset and, at Standard Life, cannot be changed once the cancellation period has expired. A different route, such as moving an annuity to another provider, has its own rules.
How can we see what each option costs for the two of us?
Ask for illustrations side by side. Aviva offers illustrations with different options to show the difference each makes, and where a dependant's income is included, your income takes account of their health as well as yours.
Putting the choice in front of an adviser
Which mix of partner's income, guarantee and protection fits depends on who relies on the money. An FCA-authorised adviser will help a couple settle that mix free of charge; a short form on this page brings the call-back.
An annuity itself is not tied to how markets perform, according to MoneyHelper. Money left invested instead can fall as well as rise, and you may get back less than you put in. The starting point for the whole decision is what a pension annuity is.