The new rules annuity brings improved death benefits to the market, effectively offering a ‘money-back’ guarantee, either through extended income guarantee periods of up to 30 years or returning the balance of any remaining fund on death as a lump sum.
Customers can choose an annuity that pays income guaranteed for any period up to 30 years (in one year increments). The old rules annuities only allowed guarantee periods up to 10 years.
Customers can also choose a value protection benefit of up to 100% of the initial purchase price, which will provide a lump sum on death at any age. In the past value protection was seldom used as it was subject to a 55% tax charge.
These new options are likely to prove popular with people who were previously concerned about annuity companies retaining the balance of the fund on death. Despite the new freedom and choice being introduced from 6 April, many people are still looking for some level of guaranteed regular income in retirement, with recent research showing this was a top priority for 77% of people. Only 15% of people said that managing their own money and making sure it lasts a lifetime was a top priority.
Andrew Tully, pensions technical director at MGM Advantage, said:
"We’ve fixed one of the main concerns about annuities, meaning customers can now get great value from their annuity whether they live or die. The money-back guarantee is a cost-effective option that everyone should consider, and which can be designed to suit the needs of individual customers. This gives families peace of mind that the money invested in providing a secure income won’t be lost and removes the understandable sense of financial injustice that can sometimes be felt when a holder dies early.
"Our research continues to point to the importance of securing a lifetime guaranteed income in retirement. It’s therefore important that annuities are reinvigorated so they can remain central to retirement planning in the future. We can offer competitive rates to anyone looking to secure a lifetime income, from the healthiest person to unhealthiest. When you combine these new options with the new, much lower tax treatment on death, annuities are better placed to help customers and their families moving forward.
‘But we do need to work hard to promote the benefits of annuities, and continue to focus on providing the best deals for customers. A professional financial adviser will help you choose the right options for your individual circumstances and also make sure you get the best possible rate."
