Joint Life Annuities

Privilege435

Hi all, first post, just found the forums.

I'm retiring later this year and am fortunate in having a guaranteed annuity rate of over 11% for a single life annuity on a large part of my defined contribution pension pot. Just starting planning and before I get an IFA involved I want to understand a bit more about Joint Life Annuities as I have a wife I need to provide for.

I understand that these usually provide 50% two-thirds or 75% as a spouses pension after the first death. I know what happens if I die first, what I don't know is what happens if my wife dies first. Do I still get the full 100% of the annuity or does it reduce to the 50% (or whatever the chosen percentage value is) the same as if I'd died first?

Sorry if this has been asked before, I did try searching but didn't come up with the answer.

Pension_Geek

If your wife does first it’ll make no difference to the annuity, that will still be paid in full until you die.

Privilege435

Thanks.

I thought (hoped) that was the case.

dunstonh

I understand that these usually provide 50% two-thirds or 75% as a spouses pension after the first death.

pretty much any combination to 100%.

I know what happens if I die first, what I don't know is what happens if my wife dies first. Do I still get the full 100% of the annuity or does it reduce to the 50% (or whatever the chosen percentage value is) the same as if I'd died first?

Technically, it's not a joint annuity. It is your annuity but with a spouse addon if you die before your spouse. it is 100% your income. If you die first, it becomes her income at the benefit rate. If she dies first then nothing changes as its still your income.

sandsy

Before you speak to an IFA, speak to the pension provider and see if they can change your single life guaranteed annuity rate into a joint life one, still using preferential terms. It would mean slightly less money for you but probably still better than what you might get on the open market.

bostonerimus

How old are you. At usual retirement ages a single life annuity at 11% payout rate is very very generous...

fred246

I knew an IFA who had made a lot of money asking a few questions and filling a few forms in. Her husband had done a series of manual jobs and had no pension provision. She retired and took out an annuity and promptly died. Good job she took out a joint annuity I said. Oh no apparently the plan was that he died first. She took out a single annuity and has left him in poverty.

Malthusian

sandsy wrote: »

Before you speak to an IFA, speak to the pension provider and see if they can change your single life guaranteed annuity rate into a joint life one, still using preferential terms. It would mean slightly less money for you but probably still better than what you might get on the open market.

It is very possible that the preferential terms will be single life only. They might offer a joint life annuity but the spouse's part will be on standard (i.e. poor) annuity rates.

One thing to look at would be the difference between a single life annuity and joint life annuity, and how much you would get if you took the single life annuity and used the difference (the income you'd have to give up to have a joint life annuity) to fund a guaranteed premium whole of life insurance policy for your wife.

Privilege435

Technically, it's not a joint annuity. It is your annuity but with a spouse addon if you die before your spouse. it is 100% your income. If you die first, it becomes her income at the benefit rate. If she dies first then nothing changes as its still your income.

That explains it. Thanks dunstonh. When it was called a Widow's Pension I understood what was going on. The change to being called a Joint Life annuity made me think it was something different.

How old are you. At usual retirement ages a single life annuity at 11% payout rate is very very generous...

I'm 64. Pension was taken out in 1985. At the time 11% didn't seem anything special as I think I was paying around 13% for my mortgage around then, perhaps a bit earlier. I did spot quite a while back that 11% might be rather good and pretty much doubled my contributions.

It is very possible that the preferential terms will be single life only. They might offer a joint life annuity but the spouse's part will be on standard (i.e. poor) annuity rates.

It is single life but I'm told by one of my previous business partner's who had the same policy that he was offered a joint life annuity at pretty good rates. I'll find out in the next few weeks if he was right!

One thing to look at would be the difference between a single life annuity and joint life annuity, and how much you would get if you took the single life annuity and used the difference (the income you'd have to give up to have a joint life annuity) to fund a guaranteed premium whole of life insurance policy for your wife.

That sounds a good option. Thanks Malthusian. Is there a specific name for a 'guaranteed premium whole of life insurance policy'

Privilege435

Well, I've now got the quotation for a Joint Life Annuity to compare with my single life quotation and the numbers are APPALLING! To give you the numbers...

I have a pot in the region of £730k of which just over £600k has a GAR of 11.11%. So, taking all the GAR amount as a single life with 5 years guaranteed payout my annual pension would be around £67k and I'd have approx £130k to take as tax free cash.

The quote for a Joint Life Annuity for a wife two years younger than me and with a 50% pension, keeping tfc the same, reduces my pension to £53k and wife's pension £26.5k. If I forgo any tfc then the figures are £63k and £32k.

Doing some simple calcs I would have thought the likely amount the company might have to pay my wife would be difference in our ages (2 years) + difference in our life expectancy (2. 5 years) X amount of Wife's pension (say £30k) = £135k . Yet to fund that £135k payout that statistically wouldn't be made until nearly 20 years down the line. They are taking £130k (my potential tax free cash) and also reducing my pension by £4k a year, every year, for probably 20 years so a total of £210k to fund maybe £135k!!!!!!! This does not seem a good deal to me so I doubt I'll be taking up their kind offer.

So, the alternatives... At the moment I'm thinking of upping my life insurance from the current £250k, terminating when I'm 80, and adding say another £500k maybe going on until I'm 85. At the same time I'd be investing to build another pot to fund my wife in the event of me surviving beyond the age of 85 (possible as both of my parent's are in still alive in their 90s).

Finally, questions...

1) Does this look like a workable solution?
2) Is there another option I should be looking at?

Thanks in anticipation.

dunstonh

I have a pot in the region of £730k of which just over £600k has a GAR of 11.11%. So, taking all the GAR amount as a single life with 5 years guaranteed payout my annual pension would be around £67k and I'd have approx £130k to take as tax free cash.

Is it a Scottish Widows pension? I only ask as I did one the other day that 11.11% with SW and its an unusual figure. They only offered the GAR on single life basis. On any other variation, there were no guarantees.

It may be worth asking the provider if there are any other variations that the GAR applies to. However, if not, then life assurance is a commonly used method.

You should also request 100% spouse. The difference between 50% and 100% is often quite small (although it will be magnified on your fund value). This may make the sum assured requirement on the life assurance lower and reduce the premiums accordingly.