Purchased Life Annuities

Redlander

I am 67 and my wife is 66. My pension pot is about £122,000; hers is £84,000. We are thinking of buying annuities and I have used the AnnuityReady website to research the options.

AnnuityReady asks how much of the 25% tax-free lump one wants to keep - a total of about £50,000 in our case; we are not inclined to take any of it (we have other capital), but to contribute it to our annuities. However this seems to incur a penalty because the portion of our annuity payments derived from this 25% would incur income tax that was not properly due. 

The solution seems to be to use the 25% to buy a "Purchased Life Annuity" https://www.canadalife.co.uk/retirement/purchased-life-annuity/, which does not levy tax on that portion of of the annuity payouts that represent a refund of the capital.

This would, I think,  mean buying three annuities

• An ordinary one for me
• An ordinary one for my wife
• A Purchased Life Annuity for us jointly

However it seems to be a rather rare and specialised product; I can find only one provider that offers it - Canada Life - and they do not provide an online calculator to work out what the payout would be. They discourage direct purchase and advise that the product is intended to be arranged through an Independent Financial Adviser.

So my questions are

1. Are PLAs really the obscure niche product that they appear to be?
2. If so, why? 
3. Could it be that they are not the best solution for our situation (a situation that one might supose was quite common)? For instance, might the Financial Adviser's fee outbalance the tax advantage?
4. Do we really need to engage an IFA, if we know exactly the terms of the annuity we want?
5. Would an IFA be able to find providers other than Canada Life who might have a better offer, or is Canada Life really the only show in town?

Marcon

Redlander said:

I am 67 and my wife is 66. My pension pot is about £122,000; hers is £84,000. We are thinking of buying annuities and I have used the AnnuityReady website to research the options.

AnnuityReady asks how much of the 25% tax-free lump one wants to keep - a total of about £50,000 in our case; we are not inclined to take any of it (we have other capital), but to contribute it to our annuities. However this seems to incur a penalty because the portion of our annuity payments derived from this 25% would incur income tax that was not properly due. 

The solution seems to be to use the 25% to buy a "Purchased Life Annuity" https://www.canadalife.co.uk/retirement/purchased-life-annuity/, which does not levy tax on that portion of of the annuity payouts that represent a refund of the capital.

This would, I think,  mean buying three annuities

• An ordinary one for me
• An ordinary one for my wife
• A Purchased Life Annuity for us jointly

However it seems to be a rather rare and specialised product; I can find only one provider that offers it - Canada Life - and they do not provide an online calculator to work out what the payout would be. They discourage direct purchase and advise that the product is intended to be arranged through an Independent Financial Adviser.

So my questions are

1. Are PLAs really the obscure niche product that they appear to be?
2. If so, why? 
3. Could it be that they are not the best solution for our situation (a situation that one might supose was quite common)? For instance, might the Financial Adviser's fee outbalance the tax advantage?
4. Do we really need to engage an IFA, if we know exactly the terms of the annuity we want?
5. Would an IFA be able to find providers other than Canada Life who might have a better offer, or is Canada Life really the only show in town?

1. No
2. n/a
3. and 4. IFAs can frequently get better annuity rates for their clients
5. Yes

Albermarle

Redlander said:

I am 67 and my wife is 66. My pension pot is about £122,000; hers is £84,000. We are thinking of buying annuities and I have used the AnnuityReady website to research the options.

AnnuityReady asks how much of the 25% tax-free lump one wants to keep - a total of about £50,000 in our case; we are not inclined to take any of it (we have other capital), but to contribute it to our annuities. However this seems to incur a penalty because the portion of our annuity payments derived from this 25% would incur income tax that was not properly due. 

The solution seems to be to use the 25% to buy a "Purchased Life Annuity" https://www.canadalife.co.uk/retirement/purchased-life-annuity/, which does not levy tax on that portion of of the annuity payouts that represent a refund of the capital.

This would, I think,  mean buying three annuities

• An ordinary one for me
• An ordinary one for my wife
• A Purchased Life Annuity for us jointly

However it seems to be a rather rare and specialised product; I can find only one provider that offers it - Canada Life - and they do not provide an online calculator to work out what the payout would be. They discourage direct purchase and advise that the product is intended to be arranged through an Independent Financial Adviser.

So my questions are

1. Are PLAs really the obscure niche product that they appear to be? Yes
2. If so, why? Not 100% sure but knowing the reason does not change the reality.
3. Could it be that they are not the best solution for our situation (a situation that one might supose was quite common)? For instance, might the Financial Adviser's fee outbalance the tax advantage?
4. Do we really need to engage an IFA, if we know exactly the terms of the annuity we want? IFA's claim they can get a better deal that outweighs their fees.
5. Would an IFA be able to find providers other than Canada Life who might have a better offer, or is Canada Life really the only show in town? Not sure, but they would have a better chance than you alone probably.

See above in bold. Are you aware that purchased life annuities are not tax free, although you will pay less than you would would with a normal one ?

Redlander

Albermarle said:

See above in bold. Are you aware that purchased life annuities are not tax free, although you will pay less than you would would with a normal one ?

Yes, I understand that you still pay tax on the part of the payout that is deemed to be interest.

Dazed_and_C0nfused

One thing to factor in with purchased life annuities is that the taxable element isn't classed as pension income.

It's savings income so depending on your other taxable income may ultimately be taxed at 0%.

https://library.croneri.co.uk/navigate-taxi/po-heading-id_PjGwF5g_20yJANprldGvKQ

dunstonh

So my questions are

1. Are PLAs really the obscure niche product that they appear to be?

1. If so, why? 

1. Could it be that they are not the best solution for our situation (a situation that one might supose was quite common)? For instance, might the Financial Adviser's fee outbalance the tax advantage?

1. Do we really need to engage an IFA, if we know exactly the terms of the annuity we want?

1. Would an IFA be able to find providers other than Canada Life who might have a better offer, or is Canada Life really the only show in town?

1- yes
2 - not many buy them. So, you don't get as much mortality gain as lifetime annuities.  Plus, as not many are buying them, the costs of running the product are higher which means commercial rates haven't been attractive.
3 - yes that they may not be the best option (but they could be).  The fee is irrelevant as it would be the same irrespective of option selected.
4 - IFAs tend to get the best rates.  So, no, you don't need to engage one but remember if you buy direct or via a website, it can actually cost you more than an IFA.  Non-advised sites get paid a commission. The commission can often be higher than the IFA fee.  
8 - Potentially, yes.  CL are not the only provider.