Purchased Life Annuity

Boltonlass

Hello
I am approacing 60 and have had an annuity quote from my Standard Life stakeholder pension of £520 pa and £4250 tax free.

Having shopped around I can get an enhanced annuity of £640 due to poor health - that's for a fixed lifetime annuity which ends when I die.

I don't need the 25% tax free in terms of our savings (like every saver, we are already struggling as to where to house our savings for the best interest).

I have money from a house sale for this years cash ISA so any tax free annuity sum would get poor interest in a building society.

I have noticed that I could buy a voluntary 'Purchased Life Annuity' with the tax free amount of £4250 which would then, as I understand it, give me further income, tax free.

Is it a good move for me to go for the Purchased Life Annuity or are the rates poor?

I am risk averse.

xylophone

You have a new state pension statement?

https://www.gov.uk/future-pension-centre

https://www.gov.uk/new-state-pension/overview

See https://www.standardlife.co.uk/c1/guides-and-calculators/lets-talk-about-pension-flexibility-today.page

Waiting until after 6 April might suit you better?

Boltonlass

I'm really only concerned about the stakeholder pension detailed on my post at the moment. I don't get a state pension in fact until I'm 66!

kidmugsy

If your health is poor then why buy an annuity? Would aiming at income withdrawal be more attractive?

xylophone

I don't get a state pension in fact until I'm 66!

But knowing your SP situation helps with planning.

Look at the Standard Life link re pension freedom from April 6 - you have other options than an annuity - if SL don't offer the flexibility (ask them), you could transfer out to a scheme that does.

https://www.pensionwise.gov.uk/?gclid=CO2F6vyansQCFUHItAodxmgAAA

Boltonlass

kidmugsy wrote: »

If your health is poor then why buy an annuity? Would aiming at income withdrawal be more attractive?

Wouldn't income withdrawal involve investing the money in funds ? I ask because as I have said, I am risk averse.
In my mind I surely benefit from buying an annuity because it is enhanced due to my I'll health. I have had an initial quote of £520 pa and that has been increased to £640 due to my Ill health.

kidmugsy

Boltonlass wrote: »

Wouldn't income withdrawal involve investing the money in funds ? I ask because as I have said, I am risk averse.

You could even keep it as cash within your pension if you like. No investment risk there, but maybe inflation risk someday.

Boltonlass wrote: »

In my mind I surely benefit from buying an annuity because it is enhanced due to my I'll health. I have had an initial quote of £520 pa and that has been increased to £640 due to my Ill health.

You should do something you are happy with; doing something that might cost you sleep would be daft. If you are so risk averse that you would prefer an enhanced annuity, so be it.

What I had in mind was that you could run down the (£17k?) of capital by withdrawing some each year until your state pension begins. You could also top up your pension fund by £2880 (net) p.a. with a view to drawing the money out again later. In fact this might be a thing to do anyway with the money you already have that you find it hard to get good interest on.

LHW99

If you are really risk averse - would Standard Life give an increased pension if you don't take the lump sum?
Also do you have a wife and does she have pension provision? You could use some / all of the lump sum to invest in a pension for her even if she is not working, and get 20% tax relief added

jamesd

The purchased life annuity market isn't great due to limited competition.

The biggest competition in income for annuities is deferring the state pension. You'd get a 5.8% increase in your state pension for every year in which you defer taking it, increasing with inflation.

How does that percentage compare to the annuities you're seeing?

It's probably going to be better for you to take the 25% tax free lump sum and use that to let you defer the state pension for a few years, just depends on how good or bad the annuity rate is compared to deferring.

When it comes to enhanced annuities, don't go just with comparison sites. It's particularly important with them to use an IFA because there is room for negotiation on the amount you'd get. You might get a few percent more on the income from this.

I'm not having trouble finding places to put money to get good interest rates but that's in part because I'm happy to use peer to peer investing, not just savings accounts. It's easy to get more than 5% this way from places that have protection funds or security to greatly reduce (eliminate in practice, so far) the chance of losses upsetting that.

dunstonh

Generically, the examination answer would be that you should take the 25% and use a purchased life annuity. However, commercially, PLAs are not that well priced compared to lifetime annuities. There is a tax advantage so in this scenario, you would need to get a PLA quote and an enhanced annuity quote and see which results in the best NET position. Its the only way to tell as until then, its speculation as to which will be best.

kidmugsy

Chaps, is a PLA a practical proposition when the capital being discussed is only £4250?