Timing an annuity purchase

SouthCoastBoy

dunstonh said:

Sorry dunstonh what do you mean, all of it taxable or tax free?

You only use the 75% part (taxable bit) to buy the annuity.  You don't use the 25% (tax free).

So, if there is any 25% left, you would take that and use the remaining 75% bit to buy the annuity.

I am in drawdown and currently have a third uncrystallised, two thirds crystallised and taxable and wonder how this would apply to both elements.

you would crystallise the remaining amount and take the 25% due.  Then purchase an annuity with the rest.

Say you had a pot of £600k and only wanted to buy a £200k annuity and put the rest into drawdown. I assume there is no tax to pay if buying an annuity, so breakdown as follows

Tax free lump sum £150k
Annuity £200k
Amount still in pension £250k

Alternatively buy annuity for £200k and leave the rest in pension and draw down as I need taking 25% tax free with each drawdown.

Annuity £200k
DC pot £400k

Are these scenarios valid/allowed?

NedS

SouthCoastBoy said:

dunstonh said:

Sorry dunstonh what do you mean, all of it taxable or tax free?

You only use the 75% part (taxable bit) to buy the annuity.  You don't use the 25% (tax free).

So, if there is any 25% left, you would take that and use the remaining 75% bit to buy the annuity.

I am in drawdown and currently have a third uncrystallised, two thirds crystallised and taxable and wonder how this would apply to both elements.

you would crystallise the remaining amount and take the 25% due.  Then purchase an annuity with the rest.

Say you had a pot of £600k and only wanted to buy a £200k annuity and put the rest into drawdown. I assume there is no tax to pay if buying an annuity, so breakdown as follows

Tax free lump sum £150k
Annuity £200k
Amount still in pension £250k

Alternatively buy annuity for £200k and leave the rest in pension and draw down as I need taking 25% tax free with each drawdown.

Annuity £200k
DC pot £400k

Are these scenarios valid/allowed?

I believe to purchase an annuity for £200k, you would need to crystallise £266.6k and and take the £66.6k (25%) as a tax free lump sum leaving £333.3k uncrystallised in the pension.

frugal90

My wife has a Sipp to bridge the gap from she 55 to 60 until she gets her teachers pension. We are thinking of taking the 25% tax free then buying a five year fixed term annuity if the numbers stack up.

NedS

frugal90 said:

My wife has a Sipp to bridge the gap from she 55 to 60 until she gets her teachers pension. We are thinking of taking the 25% tax free then buying a five year fixed term annuity if the numbers stack up.

Over such a short period, it would be interesting to see how that compares to a 5 year bond ladder of UK gilts (or similar). Surely the annuity is just paying you back your own capital?