If your client dies after age 75, the final lump sum the beneficiaries receive will be taxed at their marginal tax rate.
Exploring the options
It is clear that there are options available on annuities to protect against poor returns from hard-earned pension savings on the early death of the annuitant.
Although these options do reduce the starting income, the benefit they could provide could be hugely valuable to a dependant or beneficiary.
It is important to have truly meaningful conversations with clients not only to establish their immediate and future income needs but also what they would like to happen when they die.
By asking the right questions you can quickly understand how your client may need or want to make a provision for a dependant or beneficiary within their annuity.
Exploring their options and looking at a range of solutions will help you meet the client’s needs and ensure they achieve the good outcomes they were seeking – not just the highest possible income.
People often underestimate how long they are going to live for in retirement.
When you are discussing retirement options with your client, use the longevity calculator on the Office for National Statistics website to get an indication of how long they need to plan for.
Highlighting the death benefit
We know that clients want to consider a range of different annuity options at retirement. When presenting the quotations to your clients, I would suggest you present the quotation that meets their need and that has the largest death benefit first.
If you start with the quote that has no death benefit and the highest income, that will be the figure they keep coming back to and everything presented after it may look disappointing in comparison.
However, if you present the quote with the largest death benefit first, you can explain that this fully meets their needs and objectives.
If the income is not high enough you can discuss reducing or removing benefit options to get to a figure that they are happy with, with a clear understanding of the trade-off between certainty of return and higher income if the original annuitant is alive.
The aim overall, of course, is to ensure the best outcomes for your clients.
Richard Cooper is business development manager at The London Institute of Banking & Finance
