When it comes to your retirement planning, don’t forget the other half.
Recent research from LV= suggests that up to three quarters of older men (those over age 50) don’t know that when they purchase an annuity with their pension fund they need to ask for a spouse’s pension if one is needed.
This means that many widows will be at risk of discovering on their husband’s death that they have no continuing annuity income.
This is clearly very worrying.
As advisers we know that many people avoid any kind of conversation about the “D” word. It’s almost as if talking about it is going to make it happen.
We find something similar in terms of making a will. Making a will doesn’t cause death to happen!
However, there are some circumstances where not making provision for a spouse when buying an annuity actually might make good financial sense.
If, for example, there are other financial resources available that will enable the surviving spouse to have a good lifestyle then not buying an annuity with a spouse’s benefit could be a good decision.
This is because a single life annuity will be higher than one which provides a spouse’s pension.
If death benefits for a survivor are an important part of making the decision at retirement then it pays to consider other options as well.
For example, Income Drawdown is sometimes selected because it might pay superior death benefits to survivors than an annuity.
I say “might” because the differences between the two need to be given serious consideration.
Often Income Drawdown is considered because of the potential for a lump sum death benefit, but it should be remembered that the lump sum payable from an Income Drawdown arrangement will suffer a special 55% tax charge.
One approach to consider might be to combine some choices together by phasing in the timing of payment of benefits.
Take some of the pension fund (called crystallisation) and buy an annuity or utilise income drawdown. The balance of the pension fund if the pension policy holder dies is payable as a lump sum and usually tax free.
Each year more of the pension plan is “crystallised” and benefits paid but the balance left untouched.
Phasing in the timing of benefits can sometimes provide superior death benefits.
