Looking after your dependants in retirement

Money Advice Service

When you retire, as well as thinking about what you will live on, it’s a good idea to make sure that your partner and/or children will be provided for. There are several ways you can do this. Read on to find out what the options are, and the pros and cons of each.

Before you retire

All defined-benefit workplace pension schemes (also known as employer salary-related pension schemes such as final salary or career average schemes) let you nominate someone to receive your pension if you die before you retire.

It can be one person or several people (such as your spouse, civil partner or partner, or your spouse, civil partner or partner and your children).

Make sure you fill in the nomination form and update it if your circumstances change.

When you retire

Personal, stakeholder and defined-contribution workplace pensions

If you have one of these pensions, you will have to decide what you do with your pension when you retire and how you take money out of it.

There are several different ways that you can make sure family members are provided for.

Make sure you fill in a nomination form telling your pension provider who is to inherit your pension pot if you die.

If your spouse, civil partner or partner doesn’t have a pension of their own, or only has a small pension, you might want to use part of your pension to provide them with an income if you die before them.

You and your spouse, civil partner or partner should talk about how much money you have to live on when you retire and how you’ll use your pension pot to provide an income for both of you.

Following changes introduced in April 2015, you now have more choice and flexibility than ever before over how and when you can take money from your pension pot.

One of these options is to use your pot to buy a guaranteed income for life – an annuity.

Buying an annuity

An annuity can provide you with a secure, regular income for the rest of your life.

There are different options for an annuity and you can buy one that will provide for your dependents after your death if you choose.

Buying a joint annuity

You can use a joint annuity to pay an income to your partner, or any other nominated beneficiary after you’ve died.

Or it can be used to pay income to your dependent child, usually until they are 23.

The amount it can pay out can vary from 10% to 100% of the income you’ll receive.

The higher the income your beneficiary will receive, the lower the income you will be paid every year while you’re alive.

If you and your partner are of similar age, a joint annuity might not cost you much extra.

But if he or she is much younger than you, it could mean you have to accept a noticeably lower income or pay more for the annuity.

A joint annuity will ensure your partner, another nominated beneficiary or dependant child will receive an income for as long as they live (or for a fixed term in the case of a child).

Using an annuity with a guarantee period

A guaranteed annuity is guaranteed to pay out an income for a set period, whether or not you are still alive.

Normally the guarantee period is between five and 10 years.

Unlike a joint annuity, it will not pay out the income for as long as your partner lives, but only for as long as the guarantee period.

That means if you die, your partner or child will only receive an income for as long as the guarantee lasts.

For example, if you take out a 10-year guarantee and die two years into this, your full annuity income will only be paid to your beneficiaries for the remaining eight years of the guarantee period.

Some people choose a joint annuity together with a guarantee (as a guarantee might not cost much extra).

This means your partner, another nominated beneficiary or dependant child will receive an income for as long as they live (if it’s a partner or other nominated beneficiary) or for a fixed term (for a dependent child).

Annuity lump sum benefit

You can buy an annuity that pays out a lump sum rather than an income to your partner or dependants, if you die before a certain time.

This option is called value protection. It’s not very common and is likely to reduce the amount of income you receive from your annuity.

It’s designed to pay your nominated beneficiary the value of the pension pot used to buy the annuity less the income already paid out when you die.

This article is provided by the Money Advice Service.

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We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.

 

Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

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