A life annuity is based on an actuarial calculation that converts capital into a regular income paid until the beneficiary’s death. Whether it involves a property viager or the payout of a life insurance policy, the same parameters apply: an initial capital amount, an estimated life expectancy and a technical interest rate. The result, however, can vary considerably depending on the assumptions used, the indexation clause chosen and the type of viager (vacant or occupied).
Life annuity indexation clause: the factor simulators leave out
Most online tools display a monthly amount without specifying the adjustment index set out in the deed. The same initial annuity can add up to very different totals over ten or fifteen years, depending on whether it is indexed to the consumer price index, a construction cost index or not indexed at all.
Without an indexation clause, the annuity’s purchasing power erodes year after year. For the seller (annuitant), this means a steadily declining real income. For the buyer (annuity debtor), it means a growing financial advantage over time.
Comparing two viager offers based solely on the initial annuity means overlooking this factor. A life annuity calculation normally takes this into account, but you should check which index is used and how often the annuity is adjusted. A well-drafted notarial deed specifies these details. A generic simulator rarely does.
Capital, life expectancy and technical interest rate: the three variables in the annuity calculation
The basic formula fits on one line: annual annuity = capital to be converted multiplied by an actuarial factor. This factor depends on three elements that interact with one another.
Capital or net value
In a property viager, the capital is not the property’s price. First, the market value must be estimated, then the bouquet (the lump sum paid on signing) is deducted. In an occupied viager, an additional discount applies to account for the right of use and habitation (DUH) retained by the seller. This discount often represents between 30 and 50% of the market value, depending on the seller’s age and the property’s location.
For an annuity from a life insurance policy or a PER, the capital is the amount available at the time of payout, net of fees.
Life expectancy: TGH05 and TGF05 mortality tables
The actuarial factor is based on mortality tables. The reference tables used in France are the TGH05 (men) and TGF05 (women) tables, published by the Institute of Actuaries. They provide a statistical life expectancy for each age and sex.
The younger the seller, the longer their life expectancy and the lower the annual annuity for the same capital. The difference between men and women is reflected directly in the factors: at the same age, a woman will receive a lower monthly annuity because payments are expected to continue for longer.
Capitalisation rate
The technical interest rate (or capitalisation rate) represents the return the buyer expects to earn on the capital tied up in the transaction. Market practice puts this rate at around 2.5% to 3% in 2026, according to industry sources. A higher rate increases the annuity paid to the seller but reduces the buyer’s margin.
Viager on two lives: what the standard calculation leaves out
When a couple sells a property through a viager, the annuity can be based on two lives. The death of the first seller then raises a question that simulators rarely address: does the annuity paid to the surviving spouse remain unchanged, or is it reduced?
Both arrangements are possible. A contract may provide for the full annuity to continue in favour of the surviving spouse. Another may stipulate a reduction (often by a quarter or a third). The arrangement chosen changes the total economic value of the buyer’s commitment and therefore the initial amount.
This point should be settled before negotiating the amount. A seller who accepts a clause reducing the annuity for the survivor should logically receive a higher initial annuity, since the buyer’s total commitment is lower. In practice, this compensation is not always reflected in the offers made.
Estimating a fair amount: the limits of actuarial calculations
An actuarial factor provides a mathematically consistent amount. It does not provide an amount that both seller and buyer would consider “fair.” Several areas of uncertainty remain:
- The property’s market value is based on an estimate, not an observed market price. Two experts may differ significantly, and that difference directly affects the calculated annuity.
- There are various methods for valuing the DUH in an occupied viager. Tax scales, an economic method based on capitalised rent, a mixed approach: each method produces a different result, and none is accepted as the single standard.
- Mortality tables describe the general population. They do not account for the seller’s individual health, which may differ considerably from the statistical average in either direction.
A simulator applies fixed assumptions to these three parameters. The result shown is neither a minimum nor a maximum price: it is a starting point for negotiation.
Life annuity taxation: taxable portion by age
A life annuity for consideration (property viager, PER) is not fully taxable. The French General Tax Code (Article 158) sets a taxable portion based on the annuitant’s age when they begin receiving the annuity:
- Under 50: 70% of the annuity is subject to income tax
- From 50 to 59: the taxable portion falls to 50%
- From 60 to 69: the taxable portion is 40%
- From age 70: only 30% of the annuity is taxable
This tax scale benefits older sellers. A 72-year-old annuitant keeps 70% of their annuity after income tax (excluding social security contributions), significantly improving the real return compared with other conventional property income.
Assessing the fair amount of a life annuity involves more than entering three figures into a simulator. The indexation clause, the number of lives, the method used to value the DUH and the tax treatment each have a substantial effect on the final result. Actuarial calculations set the framework; negotiation begins where the mortality tables end.
