What is a 'Guarantee Period'?
If you die soon after taking out an
annuity, it will not have paid out much. To guard against this, you can
choose an annuity with a guarantee period.
These sorts of annuity commonly guarantee
to pay out at least five or ten years' worth of income, even if you die
within this period. On your death, the income may continue to be paid
for the rest of the guarantee period, or it may be paid as a lump sum to
your estate (and inheritance tax might be due on it).
If anyone is financially dependent on you,
do not look on a guarantee period as a substitute for a joint-life last
survivor annuity. If you live to the end of the guarantee period, the
survivors will get nothing.
Example of an annuity
with a guarantee period
Harriet, 60, retires. After taking a
tax-free lump sum, she uses the remaining £30,000 pension fund to buy an
annuity. She hopes to live to a ripe old age but, if not and having no
closer relatives, she would like to leave something to her nephew. She
chooses a level annuity with a ten-year guarantee.
Harriet gets an income of £2,160 a year.
Whatever happens the annuity guarantees to pay out 10 x £2,160 =
£21,600.
After only two-and-a-half years, Harriet
dies. The annuity has paid her a total income of £5,400. The rest of the
guaranteed benefit goes into her estate and will be distributed
according to her will.
Value Protection -
a new benefit should you die before age 75People are often concerned they may not see the full value
from their annuity if they pass a way in the early years - value
protection means this eventuality is taken care of.
A lump sum can be paid out in the event of
death before age 75 but you are also safe in the knowledge that income
will be paid out for life, even if that is longer than you had planned
for financially.
You can choose to protect up to 100% of the
value of your pension fund. Adding value protection will reduce your
pension income and you need to be sure that you can still meet your
needs.
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