Looking after your dependants in retirement

When you retire, as well as thinking about what you will live on, it’s a good idea to make sure that your partner and/or children will be provided for. There are several ways you can do this. Read on to find out what the options are, and the pros and cons of each.

Before you retire

All defined-benefit workplace pension schemes (also known as employer salary-related pension schemes such as final salary or career average schemes) let you nominate someone to receive your pension if you die before you retire.

It can be one person or several people (such as your spouse, civil partner or partner, or your spouse, civil partner or partner and your children). Make sure you fill in the nomination form and update it if your circumstances change.

When you retire

Personal, stakeholder and defined-contribution workplace pensions

If you have one of these pensions, you will have to decide what you do with your pension when you retire and how you take money out of it. There are several different ways that you can make sure family members are provided for.

Make sure you fill in a nomination form telling your pension provider who is to inherit your pension pot if you die.

If your spouse, civil partner or partner doesn’t have a pension of their own, or only has a small pension, you may want to use part of your pension to provide them with an income if you die before them. You and your spouse, civil partner or partner should talk about how much money you have to live on when you retire and how you will use your pension pot to provide an income for both of you.

Following changes introduced in April 2015, you now have more choice and flexibility than ever before over how and when you can take money from your pension pot. One of these options is to use your pot to buy a guaranteed income for life - an annuity.

Buying an annuity

An annuity can provide you with a secure, regular income for the rest of your life. There are different options for an annuity and you can buy one that will provide for your dependants after your death if you choose.

Buying a joint annuity

You can use a joint annuity to pay an income to your partner, or any other nominated beneficiary after you’ve died. Or it can be used to pay income to your dependent child, usually until they are 23.

The amount it can pay out can vary from 10% to 100% of the income you will receive. The higher the income your beneficiary will receive, the lower the income you will be paid every year while you are alive.

If you and your partner are of similar age, a joint annuity may not cost you much extra. But if he or she is much younger than you, it could mean you have to accept a noticeably lower income or pay more for the annuity.

A joint annuity will ensure your partner, another nominated beneficiary or dependant child will receive an income for as long as they live (or for a fixed term in the case of a child).

Using an annuity with a guarantee period

A guaranteed annuity is guaranteed to pay out an income for a set period, whether or not you are still alive. Normally the guarantee period is between five and 10 years. Unlike a joint annuity, it will not pay out the income for as long as your partner lives, but only for as long as the guarantee period.

That means if you die, your partner or child will only receive an income for as long as the guarantee lasts.

For example, if you take out a 10-year guarantee and die two years into this, your full annuity income will only be paid to your beneficiaries for the remaining eight years of the guarantee period.

Some people choose a joint annuity together with a guarantee (as a guarantee may not cost much extra). This means your partner, another nominated beneficiary or dependant child will receive an income for as long as they live (if it’s a partner or other nominated beneficiary) or for a fixed term (for a dependent child).

Annuity lump sum benefit

You can buy an annuity that pays out a lump sum rather than an income to your partner or dependants, if you die before a certain time. This option is called value protection. It’s not very common and is likely to reduce the amount of income you receive from your annuity. It is designed to pay your nominated beneficiary the value of the pension pot used to buy the annuity less the income already paid out when you die.

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