Tax Free Annuity on Death

Tax Free Annuity on Death.

The Chancellor of the Exchequer, George Osborne, is expected to announce new tax incentives for annuities on death as he delivers the pre Budget Autumn speech next week.

We have already written an article and published a video urging savers to not forget about annuities.  They are lower risk when compared to flexible pension drawdown.

Annuity rates have tumbled over the last decade and with the fact that you lose all your pension pot on death if it is a single life annuity has made annuity not the preferred choice at retirement.  So much so that new pension flexibility drawdown rules have captured all the headlines and with the newly proposed potential tax free benefits on death, savers and advisers have all but turned their backs on annuities at retirement.

We have long advocated both the pension industry and government to innovate with annuities as they are an important, safer income option at retirement.

Perhaps now, this may be starting to happen and will bring much relief to beleaguered annuity companies.

Reports and speculation is rife that the Chancellor will announce on Wednesday that on premature death, annuities can continue to be paid to a surviving partner with no liability to tax.

Comment

The questions, as ever, are yet unanswered until the Chancellor delivers his speech.  Given the death benefits already announced for flexible pension drawdown, it makes sense that some tax concession of offered to those who select annuity as their preferred retirement option.

The questions are

• Will the Chancellor offer tax free annuities on death for the surviving partner?
• Will any changes be backdated to include existing annuities in payment already?

Our best guess is that surviving partner annuities will be paid tax free and the rules will not be backdated.  All these new pension tax rules are designed to encourage new retirement savers and not those who have already retired, and given recent research that today’s pensioner is better off than today’s worker.