Buying an Annuity

poorbabe

Are they statutory?

I only ask because my mother is 73 and receives the State and company pensions but has never been contacted re an annuity. Does she have to buy one? Is it a good idea?

Update: I put my fingers to work and searched through Google :rolleyes: to find out what an annuity is. Seeing as my mother retired at 60 I can't see her wanting to be bothered with setting up an annuity when she's been fine making trips to the bank as and when. We (us children) had enough problems trying to get her to review her savings annually so have now given up, even though we knew we could get her better savings options than she currently has :mad:

Andy_L

Annuities are used to convert savings/investments into a guaranteed income for life.

Considering her age the company pension is probably a final-salary pension & so that pays out her pension from it's own funds without using an annuity.

The state pension is paid from tax revenue rather than using annuities

poorbabe

Thanks Andy.

EdInvestor

Andy_L wrote: »

Annuities are used to convert savings/investments into a guaranteed income for life.

Annuities were only compulsory for money saved in pensions.They're not compulsory any more.

TMFTP

EdInvestor wrote: »

Annuities were only compulsory for money saved in pensions.They're not compulsory any more.

Really? What are the Tories getting a bee in their bonnet about then?

EdInvestor

TMFTP wrote: »

Really? What are the Tories getting a bee in their bonnet about then?

They don't like the alternative - the "ASP" - very much, and also it wasn't crystal clear that the ASP was available to all (now it is). Although you don't have to give up your fund with an ASP, you have to take a minimum (taxable) income at 75, and when you die, the money loses the tax advantages it had on death before age 75, ( the fund is paid out in cash and if a pension has not been started, it's tax free, and outside the estate, so no IHT either).

This has led some better off people to use pensions as a kind of life assurance policy with added tax relief.The Government doesn't like this - sees it as an abuse of the pension and tax rules - and thus the ASP gets hit by loads of taxes on death of the spouse, such that little capital is left over for passing onto heirs.So the effect is not that different from losing all your capital by buying an annuity.

It would be better IMHO if the Government extended the pre age 75 income drawdown rules, but made it a requirement for people to "vest" their funds (ie take out at least the tax free cash) by say, state retirement age.(This would not mean you had to take an income and pay more tax, but would mean you couldn't treat a pension as a form of life cover.)

Then, on death, beneficiaries would get the whole fund in cash minus 35% tax, as now with drawdown - so you pay back the tax relief but don't lose the capital, which would stay out of the estate for IHT.Seems fair to me, and should stop the abuse of the system by the rich.

The Government gets itself into a terrible mess trying to plug loopholes, and this is a good example.