Annuities purchased with beneficiary drawdown money
Wildparaplanner
Member
Hi all,
I've been told by several providers that when purchasing a lifetime annuity using funds from a beneficiary drawdown plan, they will not allow any additional benefits, such as guarantee periods, value protection or spousal benefits.
I was wondering why this is the case? What is stopping these providers offering them? Struggling to find anything online which can explain it.
Thanks
Wild
Comments
It's because that is what the rules are.
Basically, you can't have death benefits on pensions bought using death benefits.
Thanks Ben - is there a particular piece of legislation which confirms this? If so, does anyone know where I can find it?
In theory, a "successors drawdown" plan is a death benefit bought using death benefits, but I suspect this is covered by a particular bit in the 2015 legislation?
If you use a pension fund to buy a secure income product, and you include a guarantee on what benefit is paid to someone else when you die, that is a separate contract attached to the annuity, with its own market value (i.e. the amount the annuity is reduced by). Only the original member can do that.
My phrasing was off, but a successor's drawdown plan isn't a death benefit. It's an income product funded with a death benefit i.e. there is no additional, separately insured and costed benefit on the beneficiary's death, only what's left in the fund.
M&G article on annuities has links to the legislation 👍
There's an annuity death benefit article somewhere!
@Wildparaplanner
Was thinking about this this morning. I don't think there's a single piece of legislation as such (though I'm sure guidance used to be quite clear).
As you'll know legislation is prescriptive it tells you what is allowed not what isn't.
When you look at all the beneficiary annuity variants they do not make provision for payment to the end of a term certain (so no guarantees). Compare that to the definition of a lifetime annuity where there s provision for the payment to the earlier of member death or end of a term certain.
And when you look at the annuity protection lump sum death benefits you see they can only be purchased with original members funds.
etc