Value protection ensures cash spent on annuity is not lost, even in event of early death. Is it one of the best kept secrets tackling one of retirees’ biggest worries when buying an annuity? Just Group and their Director David Cooper offers some further insights.
Global economic worries combined with attractive rates have increased interest in annuities from retirees keen to secure a flow of guaranteed income for the rest of their lives. However, many worry their investment could be wasted if they don’t survive for long.
An often-overlooked option – Value Protection – addresses this concern head on. It ensures that the full investment in the annuity is paid out, either as income to the retiree during their lifetime or as a lump sum to beneficiaries in the event of early death.
Just Group says that Value Protection is the ‘best kept secret’ in retirement planning. Only 7% of annuities sold in 2024/25 included Value Protection although the proportion is edging higher as the word spreads.
David Cooper, Director at Just Group said: “Annuities are the only retirement income solution that guarantees to keep paying for as long as you live but retirees often worry some of their money will be kept by the provider if they die too soon.
“Value Protection can offer a full ‘moneyback guarantee’ at modest cost. Any money not paid to the retiree as income during their lifetime is paid to their beneficiaries, up to the value of the initial investment.”
A healthy 65-year-old using a £100,000 pension pot to buy an annuity can generate about £7,172 income a year from an annuity that includes 100% Value Protection. In the event of death five years after purchase, they would have received £35,860 income, leaving £64,140 to be returned to beneficiaries.
“Selecting Value Protection does have a cost in terms of a reduced income and the exact amount will depend on the proportion of the fund the retiree wants to protect, their age along with their individual lifestyle factors and health history. But we think many would find the cost quite modest compared to the promise that the money invested will be paid back.
“It’s also worth being aware that next year, when unused pensions are set to become subject to the Inheritance Tax rules, Value Protection lump sums will be included in the estate, which may be a consideration for some retirees.”
“Annuities are often portrayed as a bet you can only win by living a long time but they offer more options than many people expect and can address all the ‘what ifs’ of retirement. Options allow you to protect the income, the capital or both, and to guard against inflation or early death. A well-structured annuity can deliver peace of mind through all the stages of retirement.”
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