Purchasing an annuity

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Q: I have £27,500 from my late husband’s retirement investment plan which I need to purchase an annuity with can you advise best firm to place the money with. Apparently as it is protected rights I can't take the lump sum even though my husband was only 50 when he died.

A: On death, priority is always given to a widow/widower or surviving civil partner (termed a survivor) and a pension must be paid to them. If the member has protected rights which he has not yet taken and he dies leaving a survivor, then the protected rights fund must be used to provide a pension to the survivor. This pension could be in the form of an annuity, USP or even ASP depending on the age of the survivor. If buying a survivor’s annuity, there is no requirement for escalation on the pension (though it could be included) and the annuity cannot have a guarantee period on it (compared with the 5 year guarantee that the member can opt for when buying their annuity). It is only if there is no survivor on death that the protected rights can be paid out as a lump sum.

This explains why you are not entitled to a lump sum from your husband’s policy. You must have a pension and this can be provided by the scheme that your husband belonged to or an alternative provider if they are able to offer you a better rate. This is known as the Open Market Option.

The process which you need to go through is to obtain a quote from the current scheme for the pension which they will provide to you as well as a quote for the Open Market Option Fund. Once you have received the quote you should then take advice from an independent financial adviser specialising in pensions who will be able to review the market for you to see if it is possible to improve on the income.

Answered by:

Chris Wicks
IFA
N-Trust Limited