Money-back annuity launches
A new annuity that offers a 'money-back guarantee' has been launched by retirement income specialist, MGM Advantage, coinciding with the launch of the new pension freedoms that come into force on 6 April.
MGM will allow retirees to either select an annuity where payments are guaranteed for any period up to 30 years - where previously they were capped at 10 - or purchase value protection that will ensure policyholders (or their estate) receive as much as 100% of the initial purchase price back when they die (less the income that has been taken).
The company expects the options to be popular among those retirees who want a guaranteed income but were previously concerned about any remaining funds returning to their insurer when they died.
Andrew Tully, technical pensions director at MGM Advantage said: "We've fixed one of the main concerns about annuities, meaning customers can now get great value from their annuity whether they live or die.
"This gives families the peace of mind that the money invested in providing a secure income won't be lost and removes the understandable sense of financial injustice that can sometimes be felt when a holder dies early."
Guaranteed payments and value protection do not come cheap, however, and mean you do have to accept a lower income as a result.
For example, a 65-year old smoker with a £100,000 pot would be able to purchase an income of £6,108 a year with no guarantees or protection. But if he or she was to guarantee payments for 20 years, that income would fall to £5,579 or £5,002 for a 30-year guarantee.
Meanwhile, if they opted for 75% value protection the income would fall to £5,873 or £5,008 if they opted for 100% value protection.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.