Annuity OR Annuity + Purchased life annuity with 25% TFLS

Steve_666_

IF you don't need the tax free lump sum from a pension, is it a better strategy to give up the tax free option and buy an annuity with the whole pot, or does the "tax on interest only" feature mean that you get more by using 75% to buy an annuity and use the 25% TFLS to buy a Purchased life annuity ?

dunstonh

Generically, the answer is that its better to use a PLA with the 25%. 
Commercially, its not always the case as lifetime annuities are sometimes priced better than PLAs.    It all depends on what the margin of difference is vs the tax situation.

Steve_666_

The PLA is split capital/interest, what happens when the capital is all used up, does it terminate, or is it a "pooled" asset and if you live long enough you are drawing from the unlucky members of the pool?

Marcon

Steve_666_ said:

The PLA is split capital/interest, what happens when the capital is all used up, does it terminate, or is it a "pooled" asset and if you live long enough you are drawing from the unlucky members of the pool?

Depends on the terms of the annuity you purchase. 

Steve_666_

Marcon said:

Steve_666_ said:

The PLA is split capital/interest, what happens when the capital is all used up, does it terminate, or is it a "pooled" asset and if you live long enough you are drawing from the unlucky members of the pool?

Depends on the terms of the annuity you purchase. 

So with a policy that terminates when the capital is gone, do they return any capital not drawn to beneficiaries if the policy holder dies early? 

Secret2ndAccount

The money won't run out. You might purchase a product for 10 years (this would run out after 10 years), or with no inflation protection (so it gradually becomes less valuable), or for whole life. If you choose whole life then that is how long it will last. They will do the actuarial calculation and offer you the appropriate regular payments. Each payment will be part return of capital and part interest/growth. You only pay tax on the growth. You might not get back all your capital, or you might get more.