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But new proposals to introduce money- back annuities may go some way to making this a more flexible and

But new proposals to introduce money- back annuities may go some way to making this a more flexible and attractive way to provide for your retirement.
At the moment, if you die shortly after purchasing an annuity, your heirs get nothing from your pension pot. Money-back annuities would result in any capital not paid to the pensioner in their lifetime going to their estate in the form of a lump-sum payment, after the deduction of income tax.That pension savings cannot at present be bequeathed in a will is a real bone of contention and, along with poor interest rates, is putting investors off pensions. Money-back annuities cannot be introduced until the Treasury, which is currently considering the proposals, agrees to sanction them. But three insurers – Norwich Union, Standard Life and Prudential – are close to offering such schemes if the rules are changed to enable them to do so.Around 257,000 annuities are sold each year – adding up to £6.2bn in new premiums – which means that a lot of people are affected by the current rules. And with the demise of the final salary pension scheme, even more people will be forced to buy annuities, making reform essential.At the moment the most people can do to protect their money is to purchase a 10-year guaranteed annuity.

If the pensioner dies within this period, the company continues to pay a monthly income to their estate for the remainder of the term. But the pensioner receives a reduced income because of the guarantee.The arrangement also delays the winding-up of their estate after their death. With money-back annuities, however, there is no long-drawn-out settlement.Money-back annuities would reduce the level of annual income that customers receive, but research from the Association of British Insurers (ABI) shows that many are willing to sacrifice some income in order for their heirs to benefit. More than one in five respondents said they would be willing to give up 20 per cent of their annuity income in exchange for a money-back guarantee or to have the option to change to a different type of annuity at some point in the future.The cost of the money-back option would depend on your age and on the annuity you choose.

The Annuity Bureau, an independent specialist, points out that any drop in income must be kept low to make the product sufficiently attractive to pensioners. According to its figures, the income generated by a man aged 65 with a pension pot of £100,000 is likely to be 5 per cent less with a money-back annuity than the income the same man could receive via a traditional pension annuity – £7,900 a year instead of £8,400.”In the early 1990s, Providence Capital launched its Capital Preservation Plan – a packaged annuity linked to life cover,” recalls Peter Quinton, managing director of The Annuity Bureau. “The product flopped because the difference in income between what you would get with the money-back guarantee and what you got without it was too great. [But] people may live with a 5 per cent drop in income if they feel they’re getting a good guarantee in return.”To receive a copy of ‘You and Your Annuity’, a free guide from The Annuity Bureau, call 0845 602 6263. The Association of British Insurers is at .uk. Henri Cash reckons it took him hundreds of hours to sort out the problems that arose from his experience of identity theft.