Value Protected Annuities 


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

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.

£100,000 - Fund originally used to purchase annuity
£  30,000 - Five years of income
£  70,000 - Unpaid income
£70,000 - 0% tax = £70,000 Amount paid out  (there would be tax to pay if the pension holder (annuitant) died after age 75). See annuity death benefits for more details.

Joint First Life Value Protection
The value protection would be paid if the annuitant (the plan holder) were to die. If the annuitant, 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.

£100,000 - Fund originally used to purchase annuity
£   8,000  - Two years of income
£  92,000 - Unpaid income
£92,000 - 0% tax = £92,000 Amount paid out

In addition to the payment of £92,000 which would be payable as directed by the annuitant,  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. 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 rules introduced in April 2015 have altered the way death benefits are taxed.  See annuity death benefits for more details.


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