For many people main attraction of an income drawdown contract are the death benefits, as they view an annuity as poor value in the event of death.

It is true that the death benefits are more flexible, and that there is a possibility of a return of the fund, which is much more limited with an annuity, even though it is possible to build in a guarantee period, or opt for value protection.

The death benefits under an unsecured pension contract using income drawdown are as follows:-

• Continue drawing down an income from the fund, until either you or your spouse would have been 75
• Buy an annuity with the remaining fund value
• Have the value of the fund paid out, less tax at a rate of 35%

If there any protected rights (funds accrued from contracting out of the Second State Pension formerly SERPS), then these first have to be used to provide your spouse an income either by continuing with drawdown or annuity purchase. Only if you have no surviving spouse, or when you spouse subsequently dies can the fund that accounts for protected rights be paid out.

If death benefits are your main concern then it would also be worth considering phased income drawdown.

The death benefits under alternatively secured pension are not as flexible as under unsecured pension. See alternatively secured pension - death benefits for more detail.

If you have a question about income drawdown or an unsecured pension contract in more detail then phone us on 0800 011 2713 or contact us online.

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