Annuities for Expats: A Complete Guide

An annuity is one of the most powerful — and most misunderstood — financial instruments available to retirees. In exchange for a lump sum, an annuity provider guarantees an income for life or for a fixed term. Done well, an annuity eliminates longevity risk for the income it covers and provides certainty that no investment portfolio can match. For internationally mobile retirees, annuities raise particular questions around currency, taxation, and how they interact with drawdown. This guide covers everything you need to know.

What an Annuity Is

An annuity is a contract with an insurance company. You pay a lump sum — typically from pension savings — and the insurer commits to paying you a fixed income for life (a lifetime annuity) or for a defined period (a fixed-term annuity). The income is calculated based on your age, health, the sum invested, the type of annuity chosen, and the interest rate environment at the time of purchase.

Once purchased, a lifetime annuity cannot be altered or cancelled. You give up the capital entirely in exchange for the income guarantee. This permanence is both the annuity's greatest strength (certainty of income for life) and its most significant drawback (loss of flexibility and control over the underlying capital).

Types of Annuity

Level Annuity

The simplest type: a fixed income paid for life. The income never changes, regardless of inflation, market movements, or how long you live. Level annuities provide the highest initial income of any annuity type, but the real value of that income erodes with inflation over time.

RPI-Linked Annuity

Income rises each year in line with the Retail Prices Index (RPI), maintaining its purchasing power. The starting income is materially lower than a level annuity — often 25-35% lower — because the insurer must price in the expected cost of future increases. Over a long retirement, the higher eventual payments from an RPI-linked annuity may well exceed the total from a level annuity, but this depends on actual inflation and longevity.

LPI-Linked Annuity

Limited Price Indexation (LPI) annuities increase each year by the lower of RPI and a cap (typically 2.5% or 5%). They offer a middle ground between the certainty of a level annuity and the full inflation protection of an RPI-linked one, at an intermediate starting income.

Joint Life Annuity

Continues to pay income after the first death at a reduced rate — typically 50% or 66.67% of the original income. The initial income is lower than a single life annuity of the same type. For couples, a joint life annuity ensures the surviving partner continues to receive income rather than losing the annuity income entirely on the first death.

Enhanced or Impaired Life Annuity

Pays a higher income than a standard annuity to applicants with health conditions or lifestyle factors that reduce life expectancy. Qualifying conditions include — but are not limited to — heart disease, cancer (including remission), diabetes, stroke, kidney disease, obesity, and smoking. The enhancement can be substantial: 20-40% more income in cases of serious conditions. Every retiree applying for an annuity should declare all relevant health conditions and obtain a full medical quotation, as the potential income uplift is too significant to leave on the table.

Fixed-Term Annuity

Provides a guaranteed income for a specified period (typically five to twenty years) rather than for life. At the end of the term, a maturity value is returned. Fixed-term annuities are useful as a bridge — for example, from retirement to State Pension age, or while drawing down more flexible assets — without committing to a permanent annuity purchase.

Why Annuity Rates Improved Dramatically from 2022

Annuity rates are primarily driven by long-dated gilt yields. The insurer takes your lump sum, invests it predominantly in gilts and corporate bonds, and uses the investment return to fund the guaranteed income it has committed to pay.

Between roughly 2009 and 2021, gilt yields were at historic lows — at times below 1% for 15-year gilts — driven by quantitative easing and loose monetary policy. Annuity rates fell to historic lows during this period, making them appear poor value relative to drawdown.

From 2022, interest rates and gilt yields rose sharply as central banks tightened monetary policy to combat inflation. Annuity rates improved substantially as a result. A 65-year-old purchasing a level lifetime annuity with £100,000 could receive approximately £6,000-£7,500 per year as of 2026 (indicative range — rates vary by provider and individual circumstances; always obtain current quotes). At the lows of 2020-2021, the equivalent figure was considerably lower.

Whether rates continue at these levels, rise further, or fall back depends on market conditions. If you are considering an annuity purchase, obtaining quotes is worthwhile sooner rather than later, and comparing multiple providers through a broker is essential.

The Annuity Decision for Expats

Non-residents face a specific set of considerations:

Currency Risk

A sterling lifetime annuity provides a fixed sterling income for life. For someone living in Cyprus, Spain, Thailand, or anywhere outside the UK, that sterling income must be converted to the local spending currency. Exchange rate movements create ongoing uncertainty — if sterling weakens relative to the euro or baht, the real purchasing power of the annuity income falls.

The currency risk of a sterling annuity is a genuine disadvantage for expats. Mitigations include:

• Using the annuity to cover sterling-denominated expenses (a UK property service charge, subscriptions, residual UK spending) where the currency match is natural.
• Using the annuity alongside other income sources (local rental income, local portfolio assets) that are denominated in the spending currency.
• Exploring international annuity products denominated in euros or US dollars.

Euro and US Dollar Annuities

Some international insurers and platforms offer annuities denominated in currencies other than sterling. These are not widely available from standard UK providers, but international financial planning specialists can access them for appropriate clients. A euro-denominated annuity for someone living in Cyprus or Spain eliminates currency risk entirely for that income stream.

Tax Treatment

The tax treatment of annuity income for non-residents depends on the double taxation treaty between the UK and your country of residence. In most cases, UK pension annuity income is taxable in your country of residence rather than the UK. However, the specific treaty terms matter: some countries have favourable flat rates or exemptions for pension income from the UK. Take advice on the specific treaty applicable to your situation before purchasing an annuity.

Drawdown vs Annuity: A Non-Resident Comparison

For UK residents, the standard comparison between drawdown and annuity considers investment returns, longevity, flexibility, and inheritance. For non-residents, additional factors apply:

Arguments for annuity (partial or full):

• Eliminates longevity risk for the covered income, regardless of how long you live or how markets perform.
• Simplifies income — no ongoing investment management required for the annuitised portion.
• Impaired life enhancement can generate significantly more income than equivalent drawdown from a portfolio.
• A floor of guaranteed income reduces the severity of sequencing risk on the remaining drawdown portfolio.

Arguments for drawdown:

• Maintains flexibility to adjust withdrawals as spending needs change.
• Capital remains in the estate until drawn (no loss of inheritance potential on early death, subject to pension rules).
• Better value if you die earlier than expected.
• Avoids locking in at a low rate if gilts fall before purchase.

For most internationally mobile retirees, a combination — using a partial annuity to guarantee essential income and drawdown for the balance — is more appropriate than a pure annuity or pure drawdown approach.

Fixed-Term Annuities as a Bridge

A fixed-term annuity can serve specific purposes in an international retirement plan:

• Bridging to State Pension age. A five or ten-year fixed-term annuity from retirement to age 67 provides guaranteed income during the gap, without committing to a permanent annuity at an age when rates may be lower.
• Bridging pension access. If pension savings are not yet accessible (below the minimum access age), a fixed-term annuity from other savings can fund the gap period.
• Market uncertainty. If you are uncomfortable with full drawdown exposure in an uncertain market environment, a fixed-term annuity provides a guaranteed income for a defined period while you wait for conditions to stabilise.

How to Shop for an Annuity

Annuity rates vary significantly between providers — sometimes by 10-20% for the same annuitant profile. The process of comparison requires:

1. Declare all health and lifestyle factors accurately and comprehensively. Any condition that may shorten life expectancy qualifies for enhanced rates.
2. Use an independent broker or financial adviser who has access to the whole of the market, not a single provider.
3. Compare quotations on a like-for-like basis: same income type (level or linked), same guarantee period, same joint/single life basis.
4. Consider the financial strength of the provider: annuity income depends on the insurer's solvency for potentially 30+ years.

The Financial Conduct Authority's guidance and the Pension Wise service (available to UK residents) provide further information, though independent advice from a qualified financial planner is recommended for decisions of this magnitude.

How Global Investments Can Help

Whether to purchase an annuity, in what form, and with what proportion of your pension savings are questions that require careful analysis of your personal circumstances, health, income needs, other assets, and the available rates at the time.

Global Investments advises internationally mobile retirees on the full range of retirement income decisions, including annuity analysis and purchase. We work with specialist annuity brokers to identify impaired life rates, explore international currency options, and model the annuity decision alongside drawdown to find the optimal income structure for each client's situation.

To discuss the annuity decision in the context of your retirement plan, please contact us.

This guide is for educational purposes and does not constitute personalised financial advice. Annuity rates and product terms change. Tax treatment depends on individual circumstances and applicable double taxation treaties. Professional advice is essential before committing to an annuity purchase.