Value Protected Annuities

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Value protected annuities, (also known as capital protected annuities) are relatively new, and were introduced in April 2006. There are a number of  which offer value protection. The aim of this value protection is to provide a return of any unpaid income in the event of death before age 75.

This return of unpaid income is subject to tax at a rate of 35%. A value protected annuity can be set up on a single life basis - just for one person or it can be arranged on  joint life basis to provide an income for a spouse.On a single life basis it would work as follows:

Single Life Value Protection
Example: The annuitant uses a fund after tax-free cash of £100,000 to buy an annuity. This gives him an income of £6,000 per year. He is aged 65. He dies five years later.

Joint First Life Value Protection
The value protection would paid if the annuitant (the plan holder) were to die before age 75. If the annuitant died before age 75, regardless of whether his spouse was dead or alive, then the value protection payment would become payable. If the spouse were still alive the income would also be paid to her.

Example: The example below uses a fund of £100,000 which in the example buys a joint life 100% annuity, with 100% value protection on a joint life first death (of the annuitant) basis, and assumes the annuitant dies after two years.

In addition to the payment of £59,800 which would be payable as directed in the annuitant's will,  the spouse, if she were still alive would continue to receive an income of £4,000 per year.

Joint Second Life Value Protection
With this option the value protection would be paid when both the spouse and the annuitant die, assuming they die before age 75. If the spouse dies first then the value protection would become payable on the death of the annuitant. If the annuitant were to die first then the value protection would not be paid until the spouse died. In the meantime the spouse would continue to receive an income.  Both the payments to the annuitant and the spouse would be deducted from the lump sum payable.

The biggest downside to value protection is that it must stop at age 75. So even if the annuitant lives beyond age 75 no lump sum benefit can be paid on death. Therefore value protection is going to be more attractive to younger annuity buyers, as it probably offers better valuefor money. If you're 74 and opt for value protection the return of the fund would be significant if you were to die before age 75. But if you live longer than 75 then there would be no death benefits. A better option would probably be a 10 year guarantee.

If you are considering taking out an annuity, then call now to speak to an independent pension specialist on 0800 011 2713 , without obligation or contact us online, or request an annuity quote.  We're totally independent, so you can be sure that you will get best annuity from the most suitable provider.

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