Value protection

Sometimes known as annuity or capital protection, value protection is an option that returns a lump sum if the policy holder dies without having received the full value of their pension fund, giving your client the ability to protect up to 100% of their original pension fund used to purchase the retirement income. 

These lump sums will be tax-free if your client dies before their 75th birthday. If the death occurs after age 75, a one-off tax charge is then applied by Her Majesty's Revenue and Customs (HMRC). From the 2016/17 tax year, this tax charge is based on the income tax rate of the beneficiary.

The tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Points to consider

  • Value protection can provide a return of money to your client's beneficiaries in the event of their death.
  • It can also protect up to 100% of your client's pension fund.
  • It is available with or without a dependant's pension selected.
  • If the total gross income paid exceeds the protected amount, no lump sum will be paid.
  • Any lump sum is not normally counted as part of the estate for inheritance tax purposes.