Should I have inherited anything from my late husband's annuity pension?

My husband has just died. When I went to get his pension as he told me to, they said there was nothing in the pot as he had died.

Should he have been advised to take a annuity pension, when he had just had cancer and was a very heavy smoker?

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Retirement money: Should I have inherited anything from my late husband’s annuity pension? (Stock image)

Steve Webb replies: I was sorry to read about your recent bereavement.

From what you have told me, your late husband probably built up a ‘pot of money’ pension over the course of his working life.

Until relatively recently, most people had very limited options as to what they did with that pension pot at retirement.

In most cases they handed the money over to an insurance company in return for a guaranteed income for life, also known as an ‘annuity’.

The simplest sort of annuity pays a fixed amount of money each year until the person who bought the annuity dies. There is nothing left at the end for a widow or any other family member.

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In the past, most people got a standard annuity rate, based just on their age, but these days the annuity companies will increasingly ask health questions.

Someone who had cancer and was a heavy smoker would generally get a much higher annuity rate because the insurance company would know that they would probably not have to pay out for very long.

If your late husband’s annuity provider did not offer him a higher rate as a smoker and as someone who had had cancer, I think you should consider complaining to them.

These days, insurance companies could get into trouble for not paying more to people in relatively poor health, so it would be worth asking them if they knew about your husband’s health record and whether they gave him a higher payment as a result.

You also mention the issue of ‘advice’ and if a financial adviser was involved you should certainly consider a complaint to them if he was poorly advised over his annuity purchase.

There are two other options which might have been open to your late husband when he bought an annuity.

The first is that annuities can come with a minimum guarantee period. This means that even if the person dies very shortly after buying the annuity, it will go on paying out for a guaranteed minimum period.

The second option is what is called a ‘joint life’ annuity. With this sort of policy, the annuity doesn’t stop when the first person dies but carries on, possibly at a reduced rate, for as long as the widow or widower lives.

One of the problems with annuities is that lots of people do not take financial advice and do not shop around when they buy an annuity.

This means they can miss out on the best deals and can miss out on favourable terms for those in poorer health.

Although your husband could have bought an annuity with a guarantee, and could have bought one which carried on paying out to you after he died, he was not required to do so.

Some people have suggested that if a married person chooses to buy a single life annuity they should have to get their spouse to sign the form to say this is OK, but there is no rule that requires this to happen.

Your experiences are a reminder to people buying annuities to think about what might happen to their loved ones if they were to die early and to consider whether a joint life annuity might be a better deal.

They are also a reminder of the value of guaranteed annuities which make sure that a minimum amount will be paid out regardless of when you die.

For anyone reading this who is married and has already bought a single life annuity – or has a partner who has done so – the purchase is irreversible.

However, you might want to have another think about your retirement finances and other ways you might provide for one another after the first partner dies.

For you personally, your late husband appears to have thought his annuity would provide something for you, so it is worth checking the paperwork to see if it was guaranteed or joint life, just in case the pension firm made a mistake when it spoke to you.

If your husband did buy a single life annuity, you probably can’t do much about this but I do think you should challenge the pension company, and his adviser too if he had one, about whether they took proper account of his poor health.

If you do not get a satisfactory response you could consider taking your complaint to the Financial Ombudsman Service who may be able to help.