At retirement, many of you may be aware that an annuity is purchased to pay you an income for the rest of your life. In simple terms, a lump sum is given to a pensions company and they agree to pay you an income.
What happens on death? If you have a married persons benefit called a spouses pension, the pension will continue to be paid to your partner at a reduced benefit until the day you spouse dies. If you have a single life pension, without any guaranteed payment period or the guaranteed payment period has passed, when you die the pension stops. If this is the day after you retire - you lose the lot! It is a windfall for the insurance company. This is the basic problem with annuities.
Gibraltar based "offshore insurer" London & Colonnial introduced a new concept called the Open Annuity. In simple terms, using their method, each Open Annuity is treated as a SEPARATE Company - a protected shell/cell company. Unlike normal annuities, where hundreds of people pool their money in the annuity company, the Open Annuity is an entirely separate and identifiable fund as each is a one off company, which therefore can be easily valued for estate and death purposes. It has been rumoured in financial magazine, Money Management, that three separate UK based insurers are planning to use this system and "white label" it for marketing to the UK masses.
Our view
The product is excellent for estate planning and has a minimum premium element of £250,000 - which precludes most pension funds but is ideal for those with larger funds who have estate planning issues and do not wish to just give up their pension fund on death.
Learn more about "At Retirement Planning" in the Pensions Adviser.com.