Annuity purchase

Pobby

If some while ago I posted a similar question then I apologise. I have a fair amount of savings and we also have a retirement income of around £22k a year. I am wondering how a sum of 90 thousand pounds, tax paid, may be treated as an annuity purchase. It is no more than a thought as I would want that amount to carry on for the survivor ether my wife or myself. With interest rates so low and reason to not see this continuing I am wondering if this an option.

xylophone

Do you mean a purchased life annuity?
http://www.sharingpensions.co.uk/pension_annuity9.htm

kidmugsy

How old are you? Annuities work because of the mutual subsidies among the holders - those who die early subsidise those who die late. They are therefore better value once you reach the age when people start dying in appreciable numbers i.e. mid 70s rather than early 60s.

jamesd

You really need a quote but in general you might think that for a purchased life annuity, around 80% would be paid tax free and 20% taxable. The split between tax free and taxable depends in large part on your age, so don't rely on those rough numbers, get the real ones from a quote.

You have enough money involved to use an IFA for this to improve your income, so do that.

In general my inclination would be to invest that money within a stocks and shares ISA for each of you and look to take 4-6% of the capital value as tax free income each year. That way it's 100% inheritable by your wife and also 100% tax free income. It takes a few years to move into the ISAs but that's OK. Unless you're in your seventies at least, the cross-subsidy is quote low. Also, purchased life annuities tend to be purchased mostly by those with longer than usual life expectancies, so that tends to lower their payout rates. These things tend t make investments a better idea for those who can handle the variations in investment capital value.