Life annuity Annuities by region

United States

Further information: Annuity (US financial products)

With a "single premium" or "immediate" annuity, the "annuitant" pays for the annuity with a single lump sum. The annuity starts making regular payments to the annuitant within a year. A common use of a single premium annuity is as a destination for roll-over retirement savings upon retirement. In such a case, a retiree withdraws all of the money he/she has saved during working life in, for example, an Individual Retirement Account (IRA), and uses some or all of the money to buy an annuity whose payments will replace the retiree's wage payments for the rest of his/her life. The advantage of such an annuity is that the annuitant has a guaranteed income for life, whereas if the retiree were instead to withdraw money regularly from the retirement account (income drawdown), he/she might run out of money before death, or alternatively not have as much to spend while alive as could have been possible with an annuity purchase.

The disadvantage of such an annuity is that the election is irrevocable and, because of inflation, a guaranteed income for life is not the same thing as guaranteeing a comfortable income for life.

United Kingdom

In the United Kingdom conversion of pension income into an annuity was compulsory by the age of 75 until new legislation was introduced by the coalition government in April 2011.  The new rules allow individuals to delay the decision to purchase an annuity indefinitely.

In the UK there are a large market of annuities of different types. The most common are those where the source of the funds required to buy the annuity is from a pension scheme. Examples of these types of annuity, often referred to as a Compulsory Purchase Annuity, are conventional annuities, with profit annuities and unit linked, or "third way" annuities. Annuities purchased from savings (i.e. not from a pension scheme) are referred to as Purchase Life Annuities and Immediate Vesting Annuities. In October 2009, the International Longevity Centre-UK published a report on Purchased Life Annuities (Time to Annuitise). In the UK it has become common for life companies to base their annuity rates on an individual's location. Legal & General were the first company to do this in 2007.

Canada

In Canada the most common type of annuity is the life annuity, which is normally purchased by persons at their retirement age with tax-sheltered funds or with savings funds. The monthly payments from annuities with tax-sheltered funds are fully taxable when withdrawn as neither the capital or return thereon has been taxed in any way. Conversely income from annuities purchased with savings funds is divided between the return of capital and interest earned, with only the latter being taxable.

An annuity can be a single life annuity or a joint life annuity where the payments are guaranteed until the death of the second annuitant. It is regarded as ideal for retirees as it is the only income of any financial product that is fully guaranteed. In addition, while the monthly payments are for the upkeep and enjoyment of the annuitants, any guaranteed payments on non-registered annuities are continued to beneficiaries after the second death. This way the balance of the guaranteed payments supports family members and becomes a two-generation income.

Internationally

Some countries developed more options of value for this type of instrument than others. However, a 2005 study reported that some of the risks related to longevity are poorly managed "practically everywhere" due to governments backing away from defined benefit promises and insurance companies being reluctant to sell genuine life annuities because of fears that life expectancy will go up.

Longevity insurance is now becoming more common in the UK and the U.S. (see Future of annuites, below) while Chile, in comparison to the U.S., has had a very large life annuity market for 20 years.