Let’s talk about annuities

Part of a Prudential annuity statement
With the good news of a vaccine to defeat Covid on the horizon, people will be able to start planning their futures again. In particular, many will have their eyes on retirement within the next few years.

You may be fortunate enough to be a member of a defined benefit pension scheme. If so, then at retirement you will automatically receive a pension, usually with some form of inflation linking. Job done.

These are still available for Civil Servants, Local Authority employees, Teachers, NHS employees, the Police, Firefighters, Railway employees and some of the large Pharmaceutical companies. Very few other employers offer pension schemes of this quality. Even those who do, have mostly moved away from the ‘Rolls Royce’ final salary type to some form of career average basis.

For most of us, our pensions from employment or self employment are of the personal pension variety. These are referred to as a defined contribution (also known as ‘money purchase’) pension. With this type of pension plan you (possibly with the help of an employer) are simply building up a fund. At retirement you need to turn that fund into a pension to support you in retirement.

What you do with your pension pot or pots is currently one of the most difficult financial planning decisions that you have to make. It will have taken you many years of sacrifice and planning to build these up. However, once you are ready to take the benefits you have to try to estimate your income requirements and the likely effects of inflation over the next 20 to 30 years.

One of the options is to purchase an annuity, which is guaranteed fixed income for a fixed term, or more commonly it may continue until you die or when another named person dies.

Annuities fell out of favour following 6 April 2015 when the concept of ‘flexi-access drawdown’ was introduced. However, having your pension pot reliant on the stock markets and knowing it might run out before you do is not to everyone’s taste. As a result annuities are beginning to recover their uses, if only for part of a person’s pension funding.

If you would like to know more about annuities there is a new section on the Towards Prosperity website dealing with this at annuities.

I advise you to go on living solely to enrage those who are paying your annuities.  It is the only pleasure I have left.”

François-Marie Arouet, known by his nom de plume Voltaire
18th Century French writer and philosopher

Dying without making a will

If you die without making a will this is called ‘dying intestate’ and the rules of intestacy provide rigid direction as to who will receive your estate.

The order of priority was set out in 1925 and has been amended from time to time with the most recent change being in relation to a surviving spouse in 2014.

What you may not be aware of is that very much earlier laws of intestacy were set for the Jewish nation around 1473 BC. This came about because one Zelophehad was blessed with five daughters but no son. When he died his daughters went to the authorities and requested that their father’s property be passed to them. As a result a new law was given to the people and our own 1925 version is similar to this in a number of ways.

If a man dies and leaves no son, give his inheritance to his daughter. If he has no daughter, give it to his brothers. If he has no brothers, give it to his father’s brothers. If his father had no brothers, give it to the nearest relative so that the inheritance stays in the family.” Numbers 27: 8-9

For an overview of the laws of intestacy please see Will and Lasting Power of Attorney

Arthur Childs

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