Pension provision: Have you considered your other half?

28 October 2016

According to the insurance and pensions company, a rising number of people are not making any provision for their spouse or partner to receive their pension payments in the event of their death, especially those before retirement age.

People making pension provisions for a partner:

• Three quarters of over 75s have made pension provisions for a spouse
• In contrast, less than half of the 45 to 54 age group have made pension provisions for their spouse
• 25% of those surveyed say their partner has no pension of their own

According to Aegon, these findings shine a spotlight on the risk of a financial shortfall for the bereaved in instances where couples do not efficiently plan their retirement finances together; or when a retiree does not make adequate provisions for their other half when arranging their retirement income.

With a quarter of people saying their spouse has no pension of their own, it leaves many thousands of people with little financial security for the future.

Fortunately, there are several options to choose from if you have a spouse, partner, or other dependent who you wish to make provisions for in the event of your death.

Here is a brief outline of the options you may wish to consider:

Joint Life Annuity

A Joint Life annuity is the only way to guarantee a retirement income will be paid to you and your spouse or partner for the rest of your lives, if you pass away before they do.

If you opt for this type of annuity then, in the event of your death, the income payments from your pension fund will continue to be paid to your partner, dependents or any beneficiary you choose to nominate on the annuity policy.

Of course, this option means that you will receive a smaller regular income from your fund than if you had selected a single-life annuity, due to the annuity paying out for the life of two people, rather than one. Only you can decide if this is a price worth paying for the certainty of knowing your other half will be taken care of when you are no longer around to do that for yourself.

It is also worth remembering that if you pass away before age 75 the continuing income from your annuity to your beneficiary will be paid tax free (see ‘Tax Implications’ below).

Guarantee Period

There are other options you may wish to consider, such as a Guarantee Period on a single life annuity.

This offers you a guaranteed period of time when your annuity income will continue to be paid out, even if you pass away during this time.

When you arrange your annuity, you will be able to decide the length of time that the guarantee period will apply to. The most popular choices are 5 or 10 years as these periods can be very reasonably priced.

Remember, if you pass away once your guarantee period has come to an end then no further payments will be received by your loved ones or your estate.

Value Protection

If you pass away and have Value Protection (or ‘lump-sum death benefits’) added to your annuity, then the provider will pay out your original fund – less tax-free cash and any income you have taken from it – to your spouse or other nominated beneficiary.

Value Protection can be an expensive option though, so must be considered carefully. Your dedicated Retirement Line specialist will be able to discuss this in more detail with you.

Flexi-Access Drawdown

When you put your funds into Drawdown then you nominate one or more beneficiaries to receive your remaining fund on your death as either a lump sum or as a regular income.

The main concern with this option is that it opens your pension fund up to investment risk, and there is no guarantee your money will provide an income for the rest of your life (or your partner’s life) like an annuity will do.

Tax implications

Remember that since April 2015, if you die before age 75 and you have a Joint Life annuity or Value Protection (or if your funds are in drawdown) then your nominated beneficiary can benefit from a lump sum or retirement income entirely tax-free.

If you pass away aged 75 or over, then they may still be able to inherit some, or all, of the remaining fund but will generally pay income tax on it at their marginal rate.

Making your decision

There are a great deal of pension options and considerations to understand, which is why seeking the assistance of an annuity specialist is so important.

Speak to a friendly Retirement Line specialist about your options today by calling 0800 652 1352 (or local rate mobile number 01733 307 240).

Retirement Line work on a non-advised basis, providing factual information to enable you to make your own informed decision.