Meet Guy

Guy is 66 and has recently been diagnosed with colon cancer. Divorced with two sons he has £150,000 in his pension fund.

He’s heard about the changes to pensions and is keen to explore his options. He is interested in taking everything as cash. This would allow him to enjoy his retirement and leave something to his children after his death. However, his adviser quickly pointed out that only the first 25% would be tax-free. 

The rest would be taxed (and most of it at 40% if it’s taken as a lump sum). What’s more, Guy has a property worth £400,000 without a mortgage. That means any money left to his children after his death would also be taxed at 40% (as the value of Guy’s property would take him over the nil rate Inheritance Tax band).

Guy’s adviser suggested taking an annuity. This would pay Guy considerably more than a standard annuity because of his colon cancer. This sounded interesting, but Guy is concerned about the position on death. He’d heard that annuities don’t pay much, if anything. His adviser told Guy that annuities can now be set up so that all of the money originally paid for the annuity can be paid to his beneficiaries, less payments made to the date of his death. And if he dies before age 75 the money can be paid completely free of tax.

The data suggests that the course of Guy’s colon cancer is unpredictable. One in four people die within 12 months of diagnosis, but more than half will still be alive after 10 years. The guarantee of a lifetime income – paying more than usual plus the tax free payment of any money remaining if Guy should die before 75, make this an attractive proposition.