IVPP - Immediate Vesting Personal Pension

bigfreddiel

What do people think of IVPPs? Basically, after tax relief and tax free lump sum you pay £1833 to receive an taxable income of £148 per annum for life? For a basic rate tax payer this would be about £120 per annum. I anticipate answers along the lines of, 'its not index linked', 'the lump sum has gone' and so on. Cheers fj

dunstonh

What do people think of IVPPs?

They can be very useful for certain people.

I anticipate answers along the lines of, 'its not index linked'

It can be if you want it to be. However, £1833 in the bank providing an income is only going to produce a level return. The pension will beat that.

'the lump sum has gone'

yes it has. However, if the extra income the pension provides allows you not to use so much of your personal savings/investments (either income or capital) to live on then its a result. You have to look at the whole picture and not just the product in isolation.

bigfreddiel

Thanks for that - good answers and advice fj

hansi

I took one of these schemes out for my wife some years ago. I can't remember the exact figures but but I think I paid in just over 2k, had an immediate refund of £900, and she now gets about £160 per year in interest on a balance which obviously reduces every year, and on her death, yearly interest payments revert to me. The sum paid yearly works out at about a 12% interest rate. Wish I could have put more money in with interest rates being what they are now!

bigfreddiel

hansi wrote: »

I took one of these schemes out for my wife some years ago. I can't remember the exact figures but but I think I paid in just over 2k, had an immediate refund of £900, and she now gets about £160 per year in interest on a balance which obviously reduces every year, and on her death, yearly interest payments revert to me. The sum paid yearly works out at about a 12% interest rate. Wish I could have put more money in with interest rates being what they are now!

Sounds about right, if you don't minde me asking, why don't you take one out for yourself - I believe you can open one each tax year? If you have the funds of course!

Thanks for your comments.

fj

hansi

Believe me, I tried. But I already had an occupational pension and the rules (at the time) forbade you fronm having an IVVP for myself. It may have changed now.

dunstonh

It has changed now.

You dont have to commence straight away either. Many pensioners will contribute the £3600 gross maximum each year with a view to taking the benefits at 70 or 75. If they dont make it, the full fund value is then paid to the beneficiary. It is quite commonly used by the retired to try and even up retirement provision a bit when one spouse is very light on their own retirement provision.

jamesd

The market has only a limited range of companies so the annuity payment rate might not be very good compared to a normal annuity. So say accumulating £10,000 and then buying a standard annuity might pay out more per Pound put in. If her health is impaired in any way (smoking, overweight, diabetes, whatever) then she might be eligible for an enhanced or an impaired health annuity which would pay out more.

Unless there's some immediate need to do it she'll probably be better off accumulating the money in a pension for a few years and then buying a normal annuity with that pension pot. Perhaps pay in every year and buy an annuity once every three years, so there's more than £10,000 to buy with.

If income is close to age allowance reduction then investing within a stocks and shares ISA may be a better idea, since income from that doesn't count as taxable income for the age allowance reduction calculation.