Thousands of widows and surviving partners are left without a pension every year after their husband or partner dies. That’s because their husband/partner bought a ‘single life’ annuity with their pension pot, which is only designed to pay a retirement income for as long as he or she lives. So what is a joint life annuity and how does it work?
Who isn’t affected
This information isn’t relevant if you have a salary related pension (such as a final salary pension) as your husband or civil partner will normally be paid a pension after you’ve died. You will normally be able to get a pension for a partner you’ve been living with, as long as you ‘nominate’ them to get it.
If you don’t have a final salary or salary related pension, and you want to buy an annuity with your pension fund — read on.
How a joint life annuity works
If you buy a joint life annuity, it will:
– Pay out a retirement income while you are alive. The amount you receive can remain the same throughout your life or rise in line with prices. You can normally get your annuity to pay out every month, three months or year.
– Pay out a retirement income to your husband or partner after you’ve died. The amount it can pay out can be the same as the pension income you receive, or a percentage of it. Normally you can choose a percentage anywhere between 10% and 100%.
SAVVY TIP: The higher the pension amount you choose for your husband or partner to receive the lower the amount you will get as a consequence.
– Pay out a retirement income to a dependent child after you’ve died. It can normally be used to pay a regular income to a child until they are 23.
Why this is a problem for women
At the moment, men tend to have far more set aside for their retirement than women. That’s changing, slowly, but couples approaching retirement now (and probably for some time to come) are likely to find that the husband or male partner has a bigger pension than the wife or female partner.
– Women have a lower pension payout than men once they retire.
– Women are more likely to rely on their husband or partner’s pension while he’s alive.
– Women tend to live longer than men and tend to be younger than their husband or partner so are more likely to be the surviving partner.
– Women are more likely to have little income — other than the state pension and possibly benefits — if their husband or partner does not buy a joint life annuity.
Some brokers provide a ‘safety net’ check when a man wants to buy a single life annuity. In the past, when people had to buy an annuity with their pension, up to 40% of men who bought a single life annuity didn’t realise that it wouldn’t provide for their wife.
How much could a joint life annuity cost?
If you want your husband, civil partner or partner’s pension to provide an income after he or she has died, it will mean that they have to take a lower income while they’re alive. However, depending on the level of income your husband/partner or you choose for you to receive after they’ve died, it may not make much that much difference.
Factors that will affect how much less the annuity will pay out if it’s on a joint life basis include:
– The age of the person taking out the annuity.
– The age of the ‘second life’ — ie the spouse or partner.
SAVVY TIP: Be aware that if you are more than ten years younger than your husband, wife or civil partner, you may find it difficult to be included in a joint life annuity. That’s because you are likely to live for much longer, and annuity providers may be reluctant to pay out for that long.
– The health of both people.
– The percentage of the income that you want the annuity to pay out when after the policyholder’s death.
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