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What happens to my annuity when I die?

One of the most common questions asked by our clients is ‘What happens to my pension when I die?’ – understandably many want to ensure that they can continue to support their loved ones when they are no longer here.

By default, when you pass away, income from a lifetime annuity will stop. This is because your pension pot has been used to purchase a guaranteed income for life. However, annuity providers will allow you to add a number of death benefits which are outlined below.

Joint-Life Cover

One of the options available is a joint-life policy, in which both you and your partner receive income from the plan. When one of you passes away the surviving partner will continue to receive either partial or full payments, as denoted by you, for the remainder of their life.

When setting up a joint-life policy the provider will consider your partner’s health and lifestyle, as well as the size of payments they are to receive as a survivor, when calculating your annuity rate.

Guarantee Periods

Annuities offer the additional option of a guarantee period, depending on the provider you can choose a period between 1 and 30 years. In the event of your death, any remaining payments within your chosen guarantee period are paid to your estate either as a lump sum or regular payments. If you die before your 75th birthday then payments made to your beneficiaries would be tax-free, following your 75th birthday it would be taxable at their marginal rate.

Value Protection

This option gives you the ability to pass on the annuity purchase amount, minus any income which has already been taken. For example, if you purchase a lifetime annuity with £100,000, taking £5,000 annual income and you pass away after receiving two payments. The remaining £90,000 would be paid to your estate.