can you use any money to buy an annuity at penison age?

wendyl1967

Background.
My husband is 42. We have paid off our mortgage. We have no debts. We have some savings. We don't have a good pension provision. He was self employed for several years where we paid a very small pension. For the last 6 years he has worked for a company where he pays £20 into a pension and the company pays £80 a month. We know that is not nearly enough. I don't pay any pension as I only work 2 hours a day after a 10 year break.

We have a big house that when we retire we could sell and buy a small bungalow. Can the money just be used to buy an annuity thus giving us a pension or does the money have to come from a pension fund to buy a annuity?

dunstonh

You can buy different annuities which do not require a pension.

wendyl1967

So you are saying that at retirement age we could buy an annuity for say £150000 and receive a pension every year?

I know we need to think about paying into a pension and after reading what Martin says on pensions we need to be putting about £450 a month away. Half husbands wage etc. Half his age is 21 so we need to put 21% of his salary away a month. Is that take home salary or before tax salary? We can't really afford to put that much away but we can afford to increase from the £20 to £200 which we are looking into. I was just looking at other options just to reassure ourselves that we will not be living of baked beans when we are sixty!

EdInvestor

There are two types of annuities:

1.Pension annuities, purchased with a pension fund

2.Purchase life annuities, purchased with money not in a pension fund.Their tax treeatment is different, so you will get a higher income with a PLA.

In addition there are new products which combine a guaranteed income without the loss of capital which is part of the annuity deal.They provide more flexibility.

https://www.livingtime.co.uk is an example.

have you checked your state pension forecasts:

https://www.thepensionservice.gov.uk

Note that once you are over 65, pension income up to around 10,000 p.a. will be tax free (from around 2011). So it's not that sensible to acquire extra pensions that will put you above that level as then you will have to pay tax.

Better rather to stash money away in the maxi ISA ( 7k a year per person).The investment funds are the same, but when you take money out later it will be tax free and of course you won't lose the capital.

wendyl1967

thanks. I did not realise you could have 7k in an ISA. I have invested £3000 in a mini cash isa for the past 2 years for each of us. I will have to look into that.

I find pensions very complicated so we have ignore it but that was not the wisest move. We concentrated on paying off our mortgage early.

I appreciate all your help and will look at the websites mentioned.

Konisberg

Think that link should be https://www.living-time.co.uk

dunstonh

I did not realise you could have 7k in an ISA. I have invested £3000 in a mini cash isa for the past 2 years for each of us

Cash ISAs are not investments. They are savings. £7k applies to investment ISAs (stocks and shares ISA/MAXI).

I know we need to think about paying into a pension and after reading what Martin says on pensions we need to be putting about £450 a month away. Half husbands wage etc. Half his age is 21 so we need to put 21% of his salary away a month. Is that take home salary or before tax salary?

The half age rule is such a rough guideline that it doensnt matter if you use net or gross. The margin of error would be much more than that.

We can't really afford to put that much away but we can afford to increase from the £20 to £200 which we are looking into.

Its an investment. Start treating it like one. Look at how its going to be invested. Look at how much you will get at the end. If you dont, you will be throwing tens of thousands of pounds away potentially.

wendyl1967

Konisberg wrote: »

Think that link should be www.living-time.co.uk

I clicked on the other site that was mentioned and it made no sense. What a difference a hyphen makes! Thanks I will check it out.