How to buy an annuity

rachelleigh73

I think I already know the answer to this but:
Can I only use savings in the form of a pension to buy an annuity? For example, instead of a pension, can I use my ISA savings to purchase an annuity? Does that work? If yes - how best to go about it, if no - why not? I have a very simple brain...so go easy on me!!

With thanks!
Rachel

kidmugsy

Yes: if you buy an annuity with money that is not in a pension scheme it's called a Purchased Life Annuity. The tax treatment is quite favourable because HMRC treats part of your payments as being a return of capital and therefore doesn't tax that part.

http://www.hmrc.gov.uk/incometax/life-annuity-income.htm

dunstonh

If you are aged over 55, then an immediate vesting personal pension may be more suitable. Purchased Life annuities exist and fit a flow chart/text book answer to a need but commercially, you often find they are not viable options.

rachelleigh73

Many thanks for the replies

Dunstonh - could you explain a bit more? I'm 39 - my earnings are irregular and my ISA's are my pension pot, so I can access them if I get really, really stuck. I'm wondering what my options are when I get closer to retirement and although it sounded interesting - I didn't really understand your posting - I did warn about my simple brain!!
Many thanks!
Rachel

atush

rachelleigh73 wrote: »

Many thanks for the replies

Dunstonh - could you explain a bit more? I'm 39 - my earnings are irregular and my ISA's are my pension pot, so I can access them if I get really, really stuck. I'm wondering what my options are when I get closer to retirement and although it sounded interesting - I didn't really understand your posting - I did warn about my simple brain!!
Many thanks!
Rachel

Are these 'isas' cash or S&S or both? If you aren't going to go down the pension route for part of your savings (and lsoing all that lovely tax relief), then you really should be in equities in some part. AS with cash savings you'll be lucky to meet inflation much less beat it.

Another reason to use a pension for at least part of your savings is that if you get REally, really stuck you Can't spend your pension but instead might be inline for some benefits after you have spent all your ISA money penson pot supporting yourself.

rachelleigh73

have googled 'immediate vesting personal pension' and there's plenty of info so will get stuck in!
Cheers!

Rachel

rachelleigh73

Thanks Atush - I hadn't really considered that side of the equation!
Rachel

dunstonh

IVPPP only applies to over 55s. So, no good for you.

Purchased Life annuities are a product that used to be quite popular. However, they are not that competitive in their pricing at this time compared to other options. The negatives outweigh the positives in most cases.

frugalescrow

People lucky enough not to have the use for the tax-free commencement lump sum of their pension can buy a PLA to increase their income, it has tax advantages over leaving the money in your pension pot as income, which is taxed. Sure there are better uses though.