Purchased Annuity not from pension pot

Skibunny40

With interest rates rising, I'm considering buying a small annuity as part of our retirement strategy. However, I don't have much in a pension pot but I will have savings (£100k) that I could use to buy an annuity. However, I keep reading that a purchased annuity is  taxed differently to one bought from a pension pot but I don't understand how. Could one of you clever people explain it in very simple language for me please?

Dazed_and_C0nfused

Skibunny40 said:

With interest rates rising, I'm considering buying a small annuity as part of our retirement strategy. However, I don't have much in a pension pot but I will have savings (£100k) that I could use to buy an annuity. However, I keep reading that a purchased annuity is  taxed differently to one bought from a pension pot but I don't understand how. Could one of you clever people explain it in very simple language for me please?

Could you start by putting some of the £100k into a pension.  Subject to the relevant earnings and annual allowance limits of course.

You will immediately benefit by the 25% the pension scheme adds in tax relief.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/purchase-life-annuity

Skibunny40

Unfortunately, I'm already putting the maximum I can into my pension (£3600, or whatever the exact figure is) as I'm an unpaid carer for my dad, so don't have a "job" as such. Luckily, my husband earns decent money so we can afford for me not to work but I'm trying to ensure I put the money we have, to good use. Thanks though, I should have explained that in my post.

Skibunny40

The lump sum is made up of ISAs I've built up

Malthusian

Can you put money into your husband's pension via him making larger pension contributions and using your savings to replace his employment income?
Part of the income from a PLA is tax free (as it's considered to be your own money coming back to you) and part is taxable as income (as it's considered a return on investment). The exact proportions depend on your age.
If the taxable part is within your personal allowance you may not pay tax at all.
PLA rates are not as good as conventional pension annuity rates. 
If your income meets your needs already, what is the need for a PLA? They would not be expected to work well as an investment; they are insurance against outliving your savings. 

xylophone

When does your husband intend to give up paid employment?

When do you and he reach SPA?

Have you both obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

Is the £100K all in cash isas?

Skibunny40

I don't know what I've done, but I can't get my post to show in the other thread! This is my reply to Malthusian's post


We could pay it into his, but his pension pot is already significantly bigger than mine, and I wasn't sure if that was a bad thing in terms of taking the money out once we retire, in terms of tax? 
My logic in getting a PLA (I'm 54, so this is forward planning for hitting 55) was partly to have some "secure" income for later on in life, as neither of us have DB pensions. DH would possibly take an annuity for part of his pension, and drawdown for the rest. Essentially my thought was that  I could recycle the PLA into my SIPP each year without paying tax on it as I'd be well within my personal allowance, but gaining the tax relief, until we reached an age that we needed the income.
I wasn't originally thinking about doing this until I was older, but as rates are getting higher I wondered if it was a good idea to lock it in while rates are high? And hope that I live to be 90!

Skibunny40

To reply to Xylophone:

Not sure when husband will retire, hopefully around 60 (5 years time) but with all that's going on, that may well get pushed out to later. Both our state pensions are on track and I've allowed for voluntary contributions if necessary, in our planning. It's all cash ISA's for this lump sum, but I have some S&S ISA's as well.

MSE_James

@Skibunny40  - I suspect you need to go to https://forums.moneysavingexpert.com/drafts and click the X to delete any draft reply that is blocking you from posting in this thread. 

Skibunny40

Bingo! Thanks MSE James 

Albermarle

Essentially my thought was that  I could recycle the PLA into my SIPP each year without paying tax on it as I'd be well within my personal allowance, but gaining the tax relief, 

The income from the PLA will not be eligible for pension tax relief. You will still be restricted to adding £3600 gross as non earner.