Should I pay into an ISA instead of a Personal Pension?
Question asked by Glen Donaldson
I’ve been reading about the different types of retirement annuity available and one option I’ve come across is a value protected annuity. I was just wondering if this is the same as a capital protected annuity, which I’ve also read about, and whether it’s an option worth considering?
A value protected annuity is another term for a capital protected annuity. Whether or not a value protected annuity is worth considering for you depends on your circumstances.
However, they’re generally most suited for those who want their loved ones to receive some return of the capital they invested in an annuity after they pass away.
When you take out an annuity, some providers allow you to protect a proportion of the initial capital you paid to purchase the annuity. That means if there’s any part of the initial capital leftover when you die, your family receives it back as a death benefit.
So if you protected an entire annuity bought with a £100,000 pension pot and died after only receiving £30,000 in annuity income, your family would receive a value protected capital return of £70,000.
If you die after receiving £100,000 or more in annuity income, then your family wouldn’t be entitled to anything on your death.
The downside of a capital protected annuity is that the more of your annuity you choose to protect, the lower your annuity rate will be. This means it will be more expensive to buy your pension income.
The annuity death benefit you receive is taxed differently depending when you die. If you die before the age of 75, your family can usually receive the death benefit tax-free. If you die after the age of 75, the annuity death benefit is typically taxed as income at the highest marginal rate for the recipient or recipients.