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A basic annuity will stop making payments when the policyholder dies. In order to protect against the risk of losing out if the annuitant dies before getting a good return on the investment, or losing out to inflation, annuities have a number of options. These include:
- Joint life
- Guaranteed payment periods and Value Protection
You can check out the relative cost of these options by using our quick quote annuity calculator.
Single or Joint life
A single life annuity pays the highest income but stops on your death. If you are married consider the joint life option because if you die first your pension will continue to your spouse at the percentage selected:
Most annuities are guaranteed for 5 years, but 10 years is often used instead of a joint life annuity:
For example; if you have a 5 year guarantee but die after 3 years, the remaining two years’ of the guarantee period will be paid to your beneficiaries.
Value protection makes sure you get all of your money back even if you die soon after taking out your annuity. For example, if you purchased a £ 100,000 annuity paying £ 6,000 per annum but died after 10 years your total payments would only be £ 60,000 (£6,000 X 10). With 100% value protection the remaining £ 40,000 would be paid to your beneficiaries.
This sounds attractive, but it reduces the amount of annuity compared to an annuity without value protection
Escalation (inflation proofing)
It is natural to want the highest income initially, but it is important to consider a rising income to protect your income from the effects of inflation:
You can choose how often your annuity is paid:
Payments can be at the begining of the period (in advance) or at the end of the period (in arrears)
Open Market Option
Don't forget you don't have to take the annuity offered by your existing pension provider becuase you can shop around on the open market to get the best annuity in the market.
If you want to make the most of pension freedoms you should start planning ahead and make sure your financial affairs are in good shape in the years running up to retirement.William Burrows
Offices in London and Northampton
Call: 07730 435 657
Better Retirement Group Ltd
400 Pavilion Drive