Annuity/Pension Annuity - are they the same?

sassyblue

Hi all,

I've started filling out probate forms but am already stumped.  On the IHT400 question 37 ‘life assurance and annuities' it asks if the deceased 'paid premiums of any life assurance policies and annuities or other products which are payable to another person after their death'.

dad had a private pension and when you retire you purchase an annuity product to pay out a monthly sum, that’s the same annuity they are referring to isn’t it?

I’m not daft by any means but because it comes under 'life assurance and annuity' I’m not sure if it’s the same sort of annuity as the pension annuity dad had, he wasn’t paying any premiums for that, it was obviously paying him.

thanks

jsatellite

No they're different. Question 37 directs you to schedule IHT410, which says "Do not use this form to tell us about pension annuities. Use form IHT409, ‘Pensions’ instead."

Savvy_Sue

jsatellite said:

No they're different. Question 37 directs you to schedule IHT410, which says "Do not use this form to tell us about pension annuities. Use form IHT409, ‘Pensions’ instead."

Also try not to be put off by the way you keep being directed to other forms you need to fill in. I can't remember if the IHT409 was one we had to complete, but there were several, and in most cases it was a simple case of answering one question on each form, nothing complicated at all!

sassyblue

Ah thanks both.

jsatellite you learn something new everyday, it did seem odd to me as I’ve only heard the word annuity in relation to pensions.

savvy sue, exactly that! I’ve been going round in circles. I’ll take another look tomorrow with fresh eyes, I think I’ve had enough for today 

securityguy

 I’ve only heard the word annuity in relation to pensions.

Because in 2021, their pretty-much-exclusive use is "pile up cash in a pension out of your pre-tax income, buy an annuity,  take a guaranteed lifetime income on which you pay tax.".  

in the future, more and more pension funds will be used to pay yourself an income and manage the risk yourself.  I suspect MSE in ten years' time will have some horror stories, but right now a lot of people who would have bought an annuity in the past will instead do draw down.      

In the past, annuities were used for other purposes, not linked to pension savings, to provide what amount to pensions.  For example, someone who was widowed might buy an annuity with the life insurance or other settlement.  And the landed gentry in 19th century novels might buy their spinster daughters an annuity from capital, to guarantee them an income. When those novels talk about someone "having a thousand pounds a year" one form it might take was an annuity.  I don't know how those were treated for tax - does anyone know?

kuratowski

I don't know about the tax treatment in the 19th century.  But today, you can still get a purchased life annuity, the payments received are split into an "interest" element, which is taxable savings income, and a "capital" element, which isn't.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/purchase-life-annuity/ 

I don't imagine many people buy them!

securityguy

kuratowski said:

I don't imagine many people buy them!

They would be a reasonable purchase for a nervous trustee of a settlement on someone who had been left severely handicapped by an accident, where the income was their sole means of support.  It smooths out the volatility of markets and protects the income over the beneficiary's life.  Maybe.