Annuity queries

savewhereican

This forum seems to give some informed answers so i`m hoping someone can advise me on the following:
I`ll keep my questions as short as poss.

a) I have a £82.6k pension fund and simply want to take 25% now and invest the rest for buying an annuity later.
My fund company Aviva tell me this is not an option with them but from posts on this and other sites I get the impression that it is with some companies. If this is the case how would I be able to get this and who is the best? Would it mean transferring the fund or?
If so would this cost and might I lose out? How would I arrange this?

I understand there are to be new EU Gender rules in place this year to bring womens and mens pensions in line. Being a man, does this mean that any pension rates I am quoted after this change happens would be affected/reduced?

Equally the UK gov changes that are due shortly re protected rights and spouses pensions, how might this affect me or my wife when I do buy an annuity?

Sorry this is a bit lengthy but I would be very grateful for any assistance.

dunstonh

My fund company Aviva tell me this is not an option with them but from posts on this and other sites I get the impression that it is with some companies.

Aviva do have the option but not on the contract you have.

If this is the case how would I be able to get this and who is the best?

Research and analysis would tell you which is best. You can either DIY or use an IFA.

Would it mean transferring the fund or?

Yes, even if you used Aviva.

If so would this cost and might I lose out?

Might do. Depends on the term of the contract you are in and the terms of the contract you move it to. There are also the issues over reduced death benefits but one assumes you already know the negatives of unsecured income having made your mind up to use that.

I understand there are to be new EU Gender rules in place this year to bring womens and mens pensions in line. Being a man, does this mean that any pension rates I am quoted after this change happens would be affected/reduced?

yes

Equally the UK gov changes that are due shortly re protected rights and spouses pensions, how might this affect me or my wife when I do buy an annuity?

Assuming you wont be going into unsecured income and then secured in the space of 2 months, then it will mean you get greater choice of options on the whole fund and wont be restricted in the same way protected rights are.

savewhereican

Thank you for your help.
Simply said, I want to take 25% of my fund now and invest the rest for buying a conventional type of annuity (if possible) later.
What type of arrangement allows this if at all? From online research it seems only Income Drawdown (I think its called) allows this? Is this correct?
Is this what you mean when you refer to unsecured income?
If Income Drawdown is the only option that allows me to have the cash now is this available with some of the same elements as convential annuities?
Any idea how much difference the EU gender rules will make to male rates etc? I`m 65 later this year and if I have to buy an annuity would sooner or later be more beneficial?

Thanks in advance for your time in reading this and any support you can offer.

gadgetmind

savewhereican wrote: »

I want to take 25% of my fund now and invest the rest for buying a convential type of annuity (if possible) later.

I'm no annuity expert (99% sure will never buy one!) but conventional annuities are bought from pension funds whereas those bought from money outside of pensions (including PCLS) are Purchased Life Annuities. The latter are more tax efficient but rates are worse as competition isn't as keen.

However, I'm years off being able to draw on my pension, so my knowledge is slim: find someone older and wiser who's closer to this point.

savewhereican

Thanks for reading and your response.

savewhereican

What I meant by buying a conventional annuity was a level type (not inflation linked) 50% spouses pension etc. Excuse my lack of knowledge on the different types.
Is this available as a cash now buy annuity later scheme anywhere?

I`m not online again today until this evening. Thanks in advance for any replies.

CannySaver_2

Hi

If I am reading this right you want to take the tax free cash now (circa £20,500) and keep the balance invested i.e, not take an income until you are ready to retire.

You have a number of options to achieve this aim, all of which assume you are over 55.

These are generic options by the way, not saying whether they are right or wrong for you. As others have said you should perhaps seek IFA advice (www.unbiased.co.uk) or spend some time working out for yourself what you want to do.

Optons:

1. Buy an annuity now with the 75% of the fund remaining after you have taken the tax free cash but because you do not need the money pay an amount equal to the net monthly annuity payment into another pension, in effect 'recycling' the money. You will then build up another pension fund for future vesting, whilst locking into today's annuity rates (which you may see as a good or bad thing). A pension annuity calculator will help you work out current rates and the effects of adding spouses pensions and guarantee periods in. Although I would always use an IFA to arrange an annuity.

2. Use Income Drawdown, transfer the money to an Income Drawdown arrangement, take the tax free lump sum and leave the balance invested until you need to take income, which you could do directly from the fund or by buying an annuity. If you are prepared to take some capital risk with your pension then you could invest in a series of funds, alternatively if you were only defering for a short period of time, plan to buy an annuity and have a low capacity for capital loss then you could use a SIPP and use a series of SIPP deposit accounts

3. A Fixed Term Annuity would achieve your aim. Your pension fund is paid to the Fixed Term Annuity provider, they pay you the tax free cash and then put the balance into the Fixed Term Annuity which has a guaranteed maturity value at the end of a pre set term, which you decide, generally 3 - 10 years. These are useful for people who want to know where they stand in the future and have a low capacity for loss.

Be aware though that all of these options reduce the tax efficiency of death benefits; it therefore might be prudent to use raise the money you need from other savings (if possible of course).

I hope this helps.

The Canny Saver

savewhereican

Yes. That is eactly what I am after.
What does the tax efficiency of death benefits means?
My limited understanding is that if I took the the cash and bought what i understand to be a conventional annuity now I could have level terms, 5 or 10 year guarantee with a spouses pension, without any tax implications. Is this correct?
From research online I understand that income drawdown has tax negatives of 55% on death and I am not keen on this.
I`m 64, and want (if poss) a guaranteed minimum income for the rest of my life (not that it would be much with my fund or with current low rates).
Your option 1 in post No 7 seems to come nearest to this but are there tax or other drawbacks with it?

dunstonh

What does the tax efficiency of death benefits means?

The pension is outside of your estate and paid tax free to beneficiaries as 100% of the value before you commence the pension.

Once you commence the pension the pension is still outside of your estate but the rest of the fund would be subject to a 55% tax charge on death if taken as a lump sum or income tax if taken as an income.

From research online I understand that income drawdown has tax negatives of 55% on death and I am not keen on this.

45% left over is better than nothing with the annuity.

jamesd

Later is probably better. Two reasons:

1. Current gilt yields are low because of fiscal easing and that's lowered annuity rates.
2. Annuity rates go up in general as you get older.

What that combination does is mean that using income drawdown for a while is probably a good idea. Can't be guaranteed that it'll be best, just looks likely. Your pot isn't too small for drawdown to be cost-effective.

Not sure what you mean about tax implications. Pension income is taxable and part of the PAYE system, though no NI to pay on it.

You're a bit wrong and a bit right about the 55% tax on death. Here's what really happens:

A. With an annuity you die and the money is gone. No 55% tax charge, just 100% lost. You can avoid this by taking a reduction in initial income to buy some level of spouse pension and by buying a guarantee period (guarantee to pay out at full rate for a number of years after buying the annuity).

B. With income drawdown you die and your spouse or dependents inherit 100% of the money into a pension with no tax charge at all. No reduction in the initial income that you get either. Spouse can then buy an annuity in their own name if they want. It's by far the best deal for spousal pension provision.

C. With income drawdown if the money is paid to a beneficiary direct instead of into a pension pot for them there's a 55% tax charge. If you don't want the money going to a pension for a spouse then this is still better than the annuity - keeping 45% beats keeping nothing.

So for a spouse you'd be better off going for income drawdown. Whenever you die your spouse will inherit and can buy an annuity then if they want to, or stay in drawdown if they prefer. And since it'll be an annuity in their sole name it'll pay out more than they'd get from the spouse part of a pension mainly in your name.

If you wonder how to get income from income drawdown have a look at funds like Invesco Perpetual Monthly Income Plus or Invesco Perpetual Distribution and look at the yield columns for the income they pay. The capital value and income levels will vary. You deal with that by doing something like keeping a couple of years worth of desired income in a savings account. Your normal income is taken by standing order from the savings account and the investment income is paid into the savings account to top it up whenever the money gets paid out. That way you don't have to wonder about varying income and get years to adjust to any long term issues with income levels.

That doesn't guarantee your income level but it does smooth it out a lot so you don't have to deal with frequent changes in income.