Looking after your dependants when you retire
When you retire, as well as ensuring that you will have enough money, it’s a good idea to make sure that your partner and/or children will be provided for too. There are several ways this can be achieved.
Once you retire
Buying an annuity
All defined benefit workplace British Pension Schemes including employer salary-related pension schemes, final salary pension schemes or career average pension schemes, let you nominate someone to receive your pension if you die before you retire.
It can be one person or several people for example, your spouse, civil partner or partner, or your spouse, civil partner or partner and your children.
Make sure you complete the nomination form and update it as circumstances change in your life.
Once you retire
Personal, stakeholder and defined contribution workplace british pensions.
If you have a Personal, stakeholder and defined contribution workplace british pension. Then you will need to decide what you do with your pension when you retire and how you take money out of it.
There are several 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 when you die.
If your spouse, civil partner or partner doesn’t have a pension of their own, or only has a small pension, you could 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 the options to consider is to buy an annuity when will give you a guaranteed income for life.
Buying an annuity
An annuity can provide you with a guaranteed, 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 dependants after your death if you choose to.
Buying a joint annuity
You can use a joint annuity to pay an income to your partner, or any other nominated beneficiary after you have died.
Or it can be used to pay income to your dependant child, usually until they are 23.
The amount it can pay out can vary from 10% to 100% of the income you will receive.
The higher the income your beneficiary will receive, the lower the income you will be paid every year while you are 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 5 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 2 years into this, your full annuity income will only be paid to your beneficiaries for the remaining 8 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 dependant 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 is 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.