Retirees concerned that they may lose money on an annuity if they die early into their expected retirement period, should consider the option of value protection, says Just Group.
While higher rates have seen the sale of annuities grow, some retirees are still wary due to concerns that they may invest thousands of pounds that could be lost, according to the retirement specialist.
Stephen Lowe, group communications director at Just Group, said: “While it’s natural for people to worry about losing their pension money if they die prematurely, there are a range of options to make sure this can’t happen. These options do come with a cost in terms of a reduced income but the reduction can be quite modest, although that will depend on how much you want to protect and your age.”
One option available to buyers is ‘value protection’ which can ensure up to 100% of the original cost of the annuity is paid out to beneficiaries minus the income already paid.
According to a calculation by Just Group, a 60 year old using a £50,000 pension pot to buy an annuity could receive £3,006 a year guaranteed income for life with no protection or £2,846 a year income with 100% value protection.
Lowe said: “The cost of the protection is therefore £160 a year or £3 a week which is about the same as a high street coffee. If the annuitant was unfortunate enough to get hit by the proverbial bus after five years then £35,770 would be paid out to beneficiaries which is calculated as the original annuity purchase cost of £50,000 minus the five years of income already paid of £14,230.”
A joint life annuity will also continue paying income to a spouse or partner until the second death and can be a useful way for retirees to ensure a continuing flow of income to a partner without much retirement savings of their own.
Those considering an annuity also have the option of guaranteed terms, said Just Group, which ensure that payments will continue to be made to a designated beneficiary for the remainder of the term in the event of an early death of the annuitant.
Lowe recommended seeking professional advice to help “shape” the right annuity for individual circumstances.
“The standard rates published online or in newspapers are really just a starting point and most annuity buyers will receive higher income by taking the time to properly shop around for the best deal,” he added.
