Annuities are a popular choice among retirees because of the many benefits that they offer in terms of providing stability and protecting against risk. But, a question that we commonly get asked is ‘what will happen to my annuity when I die?’
Below, we explore this question in more detail and take a look at some of the different options available.
What Will Happen to My Pension Annuity When I Die?
The answer will depend on the type of annuity you have and the terms of your agreement with your pension annuity provider. By default, income from a lifetime annuity will stop when you pass away as the agreement lasts for the length of your lifetime. However, you can make arrangements for a beneficiary to receive continued payments with certain types of annuities.
If you want to ensure that your loved ones will continue to be looked after with your annuity payments after you pass away, you need to take out a specific type of annuity plan. Below, we explore some of the different options available that you can take.
Joint Life Annuities
To ensure your partner or family member is protected after you pass away, you will need to nominate a named person for your policy to be transferred over to – this is known as a joint annuity or survivors annuity. This nominee will then continue receiving the monthly payments from then on.
As joint annuities account for the life of yourself and your nominated person, the monthly payments can often be smaller than the payments you would receive from a single life annuity. This is because the policy is taking into account both lives when working out the monthly payments of the grand sum.
The tax treatment of these monthly payments varies depending on the individual circumstances of your death and can be subject to change. One such circumstance can be your age – if you die after the age of 75, for example, the monthly income is generally taxable.
Annuities with Guarantee Periods
Some annuity policies can offer guarantee periods which continue to pay out until your set end date. The most common set periods are five and 10 years, but you can set it for longer if you want. It is important to note, however, that the larger the guarantee period is, the lower the initial income will be.
So, how will this work when you die? If you pass away inside this guarantee period, the annuity payments won’t stop, instead, they will keep paying out to your beneficiaries until the end date.
Another option to secure your annuity pension on death is with a policy that includes value protection. With value protection, your beneficiaries will receive the capital you have paid into your annuity after your death – minus any income you have already received.
With value protection, you have the option to protect all of your annuity or just a part of it.
Support with Pension Annuities After Death
For all big decisions regarding your pension, it is best to talk to an expert. Almond Financial provides professional financial advice and our team of pension advisors are experienced in answering all questions about what happens to your money after you die.