Value protection options
Since 6th April 2006, it has been possible for an annuity to provide a return of capital on the death of an annuitant. This facility is known as Value Protection.
The Value Protection options
Full Value Protection
Full Value Protection gives the annuitant the opportunity of providing a lump sum for their beneficiaries. It is equal to the initial annuity purchase price, less the total amount of income paid to both the annuitant and any dependant.
Partial Value Protection
Partial Value Protection operates in a similar manner to full Value Protection. However, only a proportion of the initial annuity purchase price is protected. In this case, the lump sum payable will be the proportion of the initial annuity purchase price protected, less the total amount of income paid to both the annuitant and any dependant.
Taxation
Any lump sum payable under Value Protection is taxed at source at a current rate of 55%. In order to avoid the possibility of a further charge to inheritance tax, where possible we'll exercise our discretion when selecting who should receive any lump sum death benefit, although the annuitant's wishes will be taken into account. The tax treatment of the plan will, in part, depend on your client's personal tax status, which may be subject to change. Please refer to the Key Features for details of how benefits from your clients plan will be taxed. Any references to taxation are based on our understanding of current legislation and HM Revenue & Customs practice which can change.
Other options available:
Lump Sum Guarantee
This option operates in a similar manner to an income guarantee. However, if the annuitant dies within the selected guarantee period, the remaining payments due under the guarantee will be payable as a lump sum (currently taxed at 55%). Please note that if your customer chooses this option they cannot have Value Protection as well.
Dependant's Annuity
Choosing a dependant's annuity ensures that an income will continue to be paid to the dependant, if the annuitant dies before them.
If a dependant's annuity has been selected with Value Protection, a lump sum will only become payable on the 2nd death, and will take into account the total income paid to both the annuitant and the dependant.