MGM Advantage has launched a new annuity option, effectively offering a ‘money-back’ guarantee, either through extended income guarantee periods of up to 30 years or returning the balance of any remaining fund on death as a lump sum.
The provider explained that specifically customers can choose an annuity that pays income guaranteed for any period up to 30 years in one year increments, while under the old rules annuities only allowed guarantee periods up to 10 years.
Customers can also choose a value protection benefit of up to 100 per cent of the initial purchase price, which will provide a lump sum on death at any age, while previously value protection was seldom used due to the 55 per cent tax charge.
MGM suggested that the new option is likely to prove popular with people who were previously concerned about annuity companies retaining the balance of the fund on death.
Andrew Tully, pensions technical director at the firm, said it fixed one of the main concerns about annuities, meaning customers can now get great value from their annuity whether they live or die.
“This gives families peace of mind that the money invested in providing a secure income won’t be lost and removes the understandable sense of financial injustice that can sometimes be felt when a holder dies early.”
In October last year, MGM announced that it would allow any claims under ‘value protection’ on annuities to be held until April 2015, letting claimants benefit from the more favourable tax rules being implemented under the pension freedoms.
At present, where an individual dies and a lump sum is paid out of their annuity under value protection it is taxed at 55 per cent, irrespective of the annuitant’s age.
However, from 6 April mean that if the individual dies before age 75, the beneficiary may receive the lump sum tax free and if the annuitant is over 75 the payment will be subject to a tax charge at 45 per cent.
peter.walker@ft.com
