Flexible Income Annuity

Transcription

1 Flexible Income Annuity Death Benefits For advisers

2 For many people, making sure loved ones are provided for when they die is a top priority. The investment-linked Flexible Income Annuity from Retirement Advantage offers a range of death benefits to meet your client s needs. Many people are reluctant to buy an annuity because they re afraid they ll lose the gamble with the life insurance company if they die earlier than predicted and their investment is lost. Death benefits offer a range of ways to protect the annuitant s fund if they die prematurely and provides peace of mind for the loved ones they leave behind. What are the options? Guarantee period One to 10 years Value protection Up to 100% Joint life (spouse s benefit) Up to 100% Who can your client leave their funds to? With joint-life policies, the beneficiary will be: The spouse or civil partner of the main annuitant when the lifetime annuity was purchased; or An unmarried partner who is living with and financially dependent (or interdependent) on the main annuitant when the lifetime annuity was purchased. If your client chooses to include a guarantee period or value protection, we will have discretion to decide who will receive benefits. However, although the final decision is ours, you may tell us your wishes by nominating one or more people to receive payment. Guarantee period Your client can choose a guarantee period of up to 10 years from the start of the annuity. If the annuitant dies before the end of the guarantee period, their chosen beneficiary will receive a fixed amount for the remainder of the guarantee period. The fixed amount will be equal to the benchmark (100%) income available at the most recent review. On a single life policy, ongoing adviser fees will cease at the point of conversion to a fixed income. If there is a guarantee period and a joint life benefit is selected ongoing adviser fees will continue to be paid. There will be no further reviews until the end of the guarantee period. Client aged 65, 200,000 fund, 10-year guarantee, mildly impaired and the client has opted to take the maximum (120%) income. Minimum income (50% of income available) 5,000 Maximum income (120% of income available) 12,000 2

3 Flexible Income Annuity Death Benefits If the client died after two years, the beneficiary would receive 10,000 each year for the remainder of the guarantee period. The income payable to a beneficiary(s) on your client s death may be taxable at a rate set by HMRC for such payments. If death occurs before age 75 the income payments will be made to the beneficiary(s) tax-free until the end of the guarantee period. If death occurs from age 75 onwards the income payments made to beneficiary(s) will be taxed at their marginal rate of income tax. Value protection The value protection option allows your clients to leave up to 100% of the purchase price of their annuity (minus payments made and tax deducted) to your client s beneficiary(s) if they die before the age of 75. The value protection payment will be paid tax-free to your beneficiary(s). Client aged 65, 200,000 fund, 100% value protection, mildly impaired and the client has opted to take the benchmark income and this remains unchanged at the three-year income review. Minimum income 5,000 Maximum income 12,000 If the main annuitant dies at age 70 (ie after five years), his beneficiary will receive: 100% of the initial investment minus gross annuity payments made to date. The beneficiary will receive: 200,000 (initial investment) minus 50,000 (annuity payments made to date). Value protection payment 150,000 Value protection payment 150,000. 3

4 Joint life (spouse s benefit) Clients can leave up to 100% of their fund to their spouse, civil partner or unmarried partner when the annuity is purchased. On the death of the main annuitant, the surviving partner has three choices. Move to a fixed income If the surviving partner doesn t want to take any investment risk, they can ask for the annuity to be moved to a fixed income basis. This will happen automatically if the surviving partner is age 90 or over. We ll use the spouse s fund value at this time and apply an annuity rate to set the level of fixed income which will be paid until the partner s death. Move their fund to another insurance company It may be possible to transfer to another lifetime annuity if legislation and HMRC rules allow and the other arrangement is willing to accept the transfer. Transfers to anything other than a lifetime annuity will not be permitted. Transfers will be subject to underwriting and possible charges. Stay invested Keep the Flexible Income Annuity on the same basis as the deceased until the next automatic income review. At the next review, a new income range will be available, based on the fund value at that time. Lifetime bonuses will continue to be applied to the annuity. The surviving partner can also ask for an income review at any time and change the level of income, fund selection or required fund performance as they wish. If the surviving partner is age 90 or over, the annuity will move to a fixed income. Client aged 65, 200,000 fund, 50% joint life, mildly impaired and the client has opted to take the benchmark income. Minimum income 5,000 Maximum income 12,000 If the main annuitant dies at age 66 (one year after the policy was started), the surviving spouse will receive 5,000 (50% of the main annuitant s chosen income) each year until the next income review in two years time. If the spouse wants to choose a different income level they can do so between minimum and maximum levels that we provide. The minimum income guarantee for the surviving spouse or partner will be 2,500 (which is 50% of the original minimum income guarantee and will be in place for the lifetime of the surviving spouse regardless of actual fund value). The income payable to a dependent on death may be taxable at a rate set by HMRC for such payments. If death occurs before age 75 any income payments made to a dependent will be tax-free. If death occurs from age 75 onwards any income payments made to a dependent will be taxed at their marginal rate of income tax. 4

5 Pick and mix Your client can choose to have a guarantee period and joint life benefits or value protection and joint-life benefits. Flexible Income Annuity Death Benefits Guarantee period and joint life If your client chooses a guarantee period and joint life benefits, the fixed income guarantee is paid first and the 50% joint life benefits start at the end of the guarantee period. Client aged 65, 200,000 fund, five-year guarantee period, 50% joint life, mildly impaired and the client has opted to take the benchmark income. Minimum income 5,000 Maximum income 12,000 If the annuitant dies after two years, then the guarantee is paid for the remaining three years until the guarantee period ends. At this time, an income review will take place and let s assume the fund is now worth 180,000 after annuity payments and charges have been deducted and investment growth and any bonus has been added. The fund available for the surviving spouse will be 50% of 180,000 = 90,000. Let s assume the new income range is as follows: Minimum income 3,000 Benchmark 6,000 Maximum income 7,200 The surviving spouse will be able to choose the level of income they take from the range available (and change investment funds if they wish) and this is the income they ll receive until the next three-year review when a new income range will be re-calculated on a consistent basis. The minimum income guarantee for the surviving spouse or partner will be 2,500 (which is 50% of the original minimum income guarantee and will be in place for the lifetime of the surviving spouse) regardless of actual fund value. Value protection and joint life If your client chooses value protection and joint-life benefits, the value protection payment will be made first. Clients should be made aware that the remaining fund may not be enough to provide an income for the surviving partner or spouse. 5

6 Client aged 65, 200,000 fund, 50% value protection, 50% joint life, mildly impaired and the client has opted to take the benchmark income and this remains unchanged at the three-year income review. Minimum income 5,000 Maximum income 12,000 If the main annuitant dies at age 70 (ie after five years), his beneficiary will receive: 50% of the initial investment minus gross annuity payments made to date For ease, let s assume that after five years the fund is worth 180,000 after annuity payments and charges have been deducted and investment growth and any bonuses have been added. The beneficiary will receive: 100,000 (50% of initial investment) minus 50,000 (annuity payments made to date) Value protection payment - 50,000 Remaining fund is - 130,000 ( 180,000 minus 50,000) 50% of the remaining fund ( 65,000) will be used to provide a yearly income for the surviving spouse and they can choose to move to a fixed income basis or stay invested as demonstrated below. As the client died aged 70, both the lump sum value protection payment and the subsequent spouse s income will be made tax-free. The new income range could look as follows: Minimum income 2,150 Benchmark 4,300 Maximum income 5,160 The minimum income guarantee for the surviving spouse or partner will be 1,800. This is calculated using a percentage generated by dividing the spouse s fund value (after the value protection payment has been made) by the fund value at death of the main annuitant and applying this to the original minimum income guarantee. In this example 65,000 (50% of remaining fund after value protection payment) divided by 180,000 (fund value at death of main annuitant) = 36% of the original minimum income guarantee ( 5,000) = 1,800. The MIG will be in place for the lifetime of the surviving spouse. 6 Please note that figures used in this document are examples only.

7 Get in touch We re here to help from 8am to 6pm Monday to Friday. Flexible Income Annuity Death Benefits Sales Phone Quotes, applications and post sale enquiries Phone Website Post IFA Services Retirement Advantage MGM House Heene Road Worthing West Sussex BN11 3AT 7

8 Telephone calls may be recorded for training and quality monitoring purposes. Retirement Advantage is a trading name of MGM Advantage Life Limited. Registered no Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Retirement Advantage and the Retirement Advantage logo are trademarks of MGM Advantage Holdings Limited. Registered in England and Wales. Registered office MGM House, Heene Road, Worthing, West Sussex, BN11 3AT /15