Hypothetical Question

Pobby

If someone at retirement age had a substancial amount of savings what would be the advantage,if any,in converting the money into an annuity.As the money saved is tax paid would any monthly payment of the annuity be taxed?Am I right in thinking that any annuity would be about the same as if it were a pension pot?

EdInvestor

The type of annuity you are talking about is called aPurcahsed Life annuity. It is different from a "Compulsory pension Annuity" that you get from a pension fund, because although the rates are similar, the tax treatment is different.

You pay lower tax as the Government recognises that a portion of the money you receive is your own capital being paid back to you - this part of payment is not taxed.

PLAs are not really worth it until people are quite old though IMHO.

As usual with an annuity the advantage is that the income is payable until you die, the disadvantages are that you lose the capital,rates are now low and level annuity payments are quite severely affected by inflation over time ( almost halved after 20 years.)

Mrs_pbradley936

I think that if you buy an annuity when you die it does not form part of your Estate but the same amount invested elsewhere would. If you have children and grandchildren they might be better off if you did not buy an annuity. If I am wrong someone will soon say so.