A fixed term annuity question

Scrudgy

Can anyone advise if this is correct, and if there is a work around on this issue.

I looked into quotes for buying a fixed term annuity with part of my SIPP funds. This was to bridge the gap from age 59 (now) until state pension age of 67. The quote was acceptable and I was interested in proceeding.

I contacted Legal and General and they could not sell me their products, so I contacted two brokers who have also said I cannot buy the fixed term annuity product.

It turns out that as I have accessed my SIPP to take some tax free cash, I am no longer allowed to buy a fixed term annuity. The only way I can achieve it is if I transfer my entire pot to the annuity provider, and then they will sell me the product and then give me a huge maturity payment at the end.

• The cost of the product I wanted was £300K
• The term was to be 8 years, with no or minimal maturity to be paid at the end.
• I have crystalised funds that are greater than £300k
• I have un-crystalised funds that are also over £300k
• I cannot use either option to fund the fixed term annuity because of my accessing tax free cash previously.

Can anyone explain what the problem is? What rule I have fallen foul of? Is there a work around that will allow me to proceed?

I have contacted my SIPP provider (ii) to ask if I can split my crystallised and un-crystalised funds into separate accounts, but that is also not allowed.

I am not sure what the actual problem is, its not like I am trying to game the system to gain an advantage. I just want to buy a product that I was quoted with funds that I have. I have broken a rule, but it seems to be a fairly obtuse one to ban me forever from buying a product.

Appreciate any pointers.

FIREDreamer

I bought a lifetime annuity with part of a drawdown pot with no issues.

I know that a drawdown pot can only be transferred in its entirety, but this was an annuity purchase from an insurance company, from Hargreaves Lansdiown, not a transfer,

Don’t see why a fixed term annuity is treated any differently?

HappyHarry

The issue is that you cannot partially transfer a crystallised pot. This would be either to another drawdown provider or to a fixed term annuity provider - as this counts as a type of drawdown.

You can use part of your crystallised pot to purchase a life time annuity as this is not a drawdown product.

As a work around, you might be able to transfer your uncrystallised pot to a new provider, partially transfer £400k of that to a third provider, then take £100k tax free cash form there and use the remaining £300k crystallised fund to purchase a fixed term annuity. 

incus432

This is puzzling me.  Why is a fixed term annuity deemed a drawdown product and a lifetime annuity is not?  What is the logic behind the different treatment?  It seems a very restrictive rule

HappyHarry said

As a work around, you might be able to transfer your uncrystallised pot to a new provider, partially transfer £400k of that to a third provider, then take £100k tax free cash form there and use the remaining £300k crystallised fund to purchase a fixed term annuity.

Can you clarify why a third provider would be needed?

westv

Is it because, technically, an annuity is a product which gives regular payments for life whereas a "fixed term annuity" isn't??

incus432

westv said:

Is it because, technically, an annuity is a product which gives regular payments for life whereas a "fixed term annuity" isn't?

'An annuity is a way of converting your pension savings into a guaranteed income for life or a fixed period'
- AgeUK

MK62

Scrudgy said:

Can anyone advise if this is correct, and if there is a work around on this issue.

I looked into quotes for buying a fixed term annuity with part of my SIPP funds. This was to bridge the gap from age 59 (now) until state pension age of 67. The quote was acceptable and I was interested in proceeding.

I contacted Legal and General and they could not sell me their products, so I contacted two brokers who have also said I cannot buy the fixed term annuity product.

It turns out that as I have accessed my SIPP to take some tax free cash, I am no longer allowed to buy a fixed term annuity. The only way I can achieve it is if I transfer my entire pot to the annuity provider, and then they will sell me the product and then give me a huge maturity payment at the end.

• The cost of the product I wanted was £300K
• The term was to be 8 years, with no or minimal maturity to be paid at the end.
• I have crystalised funds that are greater than £300k
• I have un-crystalised funds that are also over £300k
• I cannot use either option to fund the fixed term annuity because of my accessing tax free cash previously.

Can anyone explain what the problem is? What rule I have fallen foul of? Is there a work around that will allow me to proceed?

I have contacted my SIPP provider (ii) to ask if I can split my crystallised and un-crystalised funds into separate accounts, but that is also not allowed.

I am not sure what the actual problem is, its not like I am trying to game the system to gain an advantage. I just want to buy a product that I was quoted with funds that I have. I have broken a rule, but it seems to be a fairly obtuse one to ban me forever from buying a product.

Appreciate any pointers.

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

incus432

MK62 said:

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

Good idea, although for an 8 year term I'd probably stick to nominal gilts

https://lategenxer.streamlit.app/Gilt_Ladder

gives cost of a flat £40k pa annuity (gross). - monthly income, zero tax (as inside SIPP) with SIPP platform paying 3% cash interest - as around 270k, depending on starting date. Excludes platform and trade costs

HappyHarry

incus432 said:

This is puzzling me.  Why is a fixed term annuity deemed a drawdown product and a lifetime annuity is not?  What is the logic behind the different treatment?  It seems a very restrictive rule

HappyHarry said

As a work around, you might be able to transfer your uncrystallised pot to a new provider, partially transfer £400k of that to a third provider, then take £100k tax free cash form there and use the remaining £300k crystallised fund to purchase a fixed term annuity.

Can you clarify why a third provider would be needed?

Good question. Not sure why I suggested that. A third provider probably isn't necessary.

HappyHarry

westv said:

Is it because, technically, an annuity is a product which gives regular payments for life whereas a "fixed term annuity" isn't??

It's because a lifetime annuity cannot be converted back to a drawdown pot at any point, whereas with a fixed term annuity there can be a guaranteed sum ay the end of the term which can be converted back to a drawdown pot.

This makes a fixed-term annuity a "drawdown" product, which are not allowed to be partially transferred.

Marcon

incus432 said:

westv said:

Is it because, technically, an annuity is a product which gives regular payments for life whereas a "fixed term annuity" isn't?

'An annuity is a way of converting your pension savings into a guaranteed income for life or a fixed period'
- AgeUK

It's never that simple in pensions...! See https://www.legalandgeneral.com/retirement/pension-annuity/guides/what-are-fixed-term-annuities/