Can I pay annuity income into a SIPP without paying tax first?

AERobson

Hello, We're currently in the process of buying a joint life annuity with my husbands personal pension pot though he plans to continue working for 4 more years and therefore we don't need the annuity income right now. We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate). The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 
However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.
Can anyone clarify this for me please?

eskbanker

I'd have thought that the contributions to the SIPP would only attract tax relief if they're made from money that's already been taxed, i.e. it should equate to the same end result whether or not the annuity payments are taxed, similar to the net pay versus relief at source models of contributions from employment income?

If you've engaged an IFA and their advice contradicts what you're being told by the annuity provider then what does the IFA have to say about that?

Dazed_and_C0nfused

AERobson said:

Hello, We're currently in the process of buying a joint life annuity with my husbands personal pension pot though he plans to continue working for 4 more years and therefore we don't need the annuity income right now. We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate). The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 
However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.
Can anyone clarify this for me please?

You need to ask how that can be achieved as it doesn't ring true.

My money is on the annuity provider being correct.

Hoenir

Annuity provider is subject to HMRC regulations when making payment. 

Any subsequent transactions are a different unrelated matter. 

dunstonh

Can I pay annuity income into a SIPP without paying tax first?

If you buy the right type of annuity, you can actually retain the income in the pension to use later. i.e. an annuity within a flexible pension

We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate).

That would be the type that I am referring to above.

The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 

That would be correct.

However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.

If you are using an IFA, then why are you contacting "the" annuity provider?

Is this the same type of annuity and the same provider of the annuity being recommended by the IFA?

For example, if you are contacting "an" annuity provider who doesn't offer a flexible pension wrapper and only does lifetime annuities then the annuity provider you are speaking to is correct about that option.    However, it would not be correct if talking about an annuity within a flexible pension.

The IFA appears to be giving you the correct information, in respect of the options available. (although they are not normally SIPPs but PPPs - but that could be the frequent niggle about people using the SIPP name for non SIPPs)
The annuity provider appears to be giving you the correct information in respect of a lifetime annuity but not about all the options available.

AERobson

eskbanker said:

I'd have thought that the contributions to the SIPP would only attract tax relief if they're made from money that's already been taxed, i.e. it should equate to the same end result whether or not the annuity payments are taxed, similar to the net pay versus relief at source models of contributions from employment income?

If you've engaged an IFA and their advice contradicts what you're being told by the annuity provider then what does the IFA have to say about that?

Thanks for your reply. I kmow I'm not very good at trusting other people to advise so I always do my own thing even when I talk to advisers. I think I've discovered the product refered to is called a Deferred Annuity. I'll look into this type of annuity further. 

AERobson

dunstonh said:

Can I pay annuity income into a SIPP without paying tax first?

If you buy the right type of annuity, you can actually retain the income in the pension to use later. i.e. an annuity within a flexible pension

We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate).

That would be the type that I am referring to above.

The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 

That would be correct.

However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.

If you are using an IFA, then why are you contacting "the" annuity provider?

Is this the same type of annuity and the same provider of the annuity being recommended by the IFA?

For example, if you are contacting "an" annuity provider who doesn't offer a flexible pension wrapper and only does lifetime annuities then the annuity provider you are speaking to is correct about that option.    However, it would not be correct if talking about an annuity within a flexible pension.

The IFA appears to be giving you the correct information, in respect of the options available. (although they are not normally SIPPs but PPPs - but that could be the frequent niggle about people using the SIPP name for non SIPPs)
The annuity provider appears to be giving you the correct information in respect of a lifetime annuity but not about all the options available.

I appreciate you breaking down the elements of my question. You have confirmed what the IFA said. I don't think I could sign away the pension pot to a annuity without double checking someone's advice/information. When it's gone it's gone so it's best to be sure before i go ahead. Many thanks.

xylophone

Deferred Annuity. 

If the annuity income is deferred then that means that it is not immediately paid to/received by the proposed recipient so presumably will not be taxable until it is?

Your husband has a personal pension plan and the money within this plan is to be used to purchase a deferred annuity, ie it is akin to a transfer from one registered pension scheme to another?

https://www.nidirect.gov.uk/articles/transferring-your-pension

Deferred annuity contract

You can also use your UK pension pot to buy a deferred annuity contract. This is a policy or contract bought from an insurance company, using funds from an approved retirement benefits scheme, or from 6 April 2006 funds from a registered pension scheme. It will provide an annuity (a payment of a fixed total amount) to the member at some time in the future. It is therefore always a deferred annuity contract when purchased.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm031300

Deferred annuity contracts purchased on or after 6 April 2006

Section 153(8) Finance Act 2004

A deferred annuity contract purchased on or after 6 April 2006 using funds from a registered pension scheme to secure rights under that scheme becomes a registered pension scheme on the day that the contract is made. 

https://www.legalandgeneral.com/retirement/pension-annuity/types-of-annuity/

What is a deferred annuity?

A deferred annuity (aka deferred income annuity) lets you delay the start date of your annuity payments by a year or more. You can buy deferred annuities with a single lump sum or several payments. Deferring your annuity income can be useful if you’re still earning now and more money coming in would push you into a higher tax band.

Before your payments begin, your provider will probably invest your money. You’ll get an agreed rate of interest on it, with the exact amount depending on your age and how much money you’ve paid in. And of course if your provider’s investment strategy works out its value could grow. Though of course, as with any investment, there’s always the risk that its value could go down too.

dunstonh

AERobson said:

dunstonh said:

Can I pay annuity income into a SIPP without paying tax first?

If you buy the right type of annuity, you can actually retain the income in the pension to use later. i.e. an annuity within a flexible pension

We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate).

That would be the type that I am referring to above.

The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 

That would be correct.

However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.

If you are using an IFA, then why are you contacting "the" annuity provider?

Is this the same type of annuity and the same provider of the annuity being recommended by the IFA?

For example, if you are contacting "an" annuity provider who doesn't offer a flexible pension wrapper and only does lifetime annuities then the annuity provider you are speaking to is correct about that option.    However, it would not be correct if talking about an annuity within a flexible pension.

The IFA appears to be giving you the correct information, in respect of the options available. (although they are not normally SIPPs but PPPs - but that could be the frequent niggle about people using the SIPP name for non SIPPs)
The annuity provider appears to be giving you the correct information in respect of a lifetime annuity but not about all the options available.

I appreciate you breaking down the elements of my question. You have confirmed what the IFA said. I don't think I could sign away the pension pot to a annuity without double checking someone's advice/information. When it's gone it's gone so it's best to be sure before i go ahead. Many thanks.

An adviser has to put their product recommendations in writing to you.   This explains why it is suitable for you and the key benefits that match your needs.   That gives you all the consumer protection you need.

Albermarle

If you buy the right type of annuity, you can actually retain the income in the pension to use later. i.e. an annuity within a flexible pension

We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate).

That would be the type that I am referring to above.

A new one on me. Every day is a schoolday !

AERobson

Dazed_and_C0nfused said:

AERobson said:

Hello, We're currently in the process of buying a joint life annuity with my husbands personal pension pot though he plans to continue working for 4 more years and therefore we don't need the annuity income right now. We have been told by an IFA that we could pay the annuity income straight into a new SIPP without having to pay tax on it (so, for example, £10,000 annuity income goes straight to the SIPP and doesn't get taxed at his current tax rate). The IFA said we could then drawdown the money in the SIPP when he retires from work, and he would then pay tax on it at the appropriate rate. 
However, the annuity provider says this isn't possible. They say the annuity income is taxed when issued and then it's up to him where he saves/spends the after tax amount.
Can anyone clarify this for me please?

You need to ask how that can be achieved as it doesn't ring true.

My money is on the annuity provider being correct.

It looks like it's correct but not widely available and only via IFAs. It could certainly have benefits for us but oh the hassle.... I'm a simple creature who likes things to be straight forward :-)