Placing an inherited lump sum into and annuity

LHW99

Rule 2: You can't pay in more than 60k per year. True, but you can go back 3 years and use your unused allowance, as long as you had any pension open at that time. You say you are in receipt of a pension. Therefore you did have a pension open. Using this year, and a couple of prior years, you easily have the headroom to pay in 133k.

AFAIK,you cannot make use of the 3 years carry back  forward allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

RogerPensionGuy

Secret2ndAccount said:

Bumdle said:

... i thought i could put £100k into a pension fund and convert the fund into an annuity ...

I hesitate to suggest this to someone who is not on top of pensions, but you can!
I recently bought an annuity with 100k, and I looked at buying a PLA outside the pension, and a more conventional annuity from inside my pension. I am younger than you, so you would get bigger monthly payments. Here (rounded for simplicity) are the best quotes I received:
Conventional Annuity From Pension
Annual payout £5,000.  Tax £1,000    In pocket: £4,000

Purchased Life Annuity
Annual payout only £4,400.  Lower Tax £352    In pocket: £4,048

So you might find that there is almost no loss for buying via the pension, but you have far more annuity options once the 100k is in the pension. In fact, you would have to pay 133k into the pension. Then you take a tax free lump sum of 33k, and a 100k annuity.
I can already feel the keyboards clicking and the peoppe screaming that you aren't allowed to pay 133k into your pension, but it's very likely that you are.
Rule 1: with no income, you can only receive tax relief on 2,880 each year. True. But you can pay in a non-relievable contribution. You don't get any tax relief. You have to tell the penion company that it's a non-relievable contribution. But it is allowed. With my company, you just tick a box when making a payment in, to say whaether it's eligible for tax relief or not.
Rule 2: You can't pay in more than 60k per year. True, but you can go back 3 years and use your unused allowance, as long as you had any pension open at that time. You say you are in receipt of a pension. Therefore you did have a pension open. Using this year, and a couple of prior years, you easily have the headroom to pay in 133k.

At a rough estimate, at 73, you could be looking at 7k per year, index linked (inflation-proof). If you go for a level annuity, you would start at over 9k per year, but it would gradually fade in value due to inflation. If you have any health issues, the payouts would be larger, and could make annuities a very attractive option.

If you are not yet confused enough, there is another alternative - do it yourself. It's called a gilt ladder. You buy a collection of government bonds. These have a guaranteed payout - a small amount, like interest, twice per year, then a fixed large payback on a set future date. You buy some that pay back in a year, some in 3 years, some in 5 years... It's like a slightly lumpy annuity. It takes a lot of setting up, and a bit of looking after, but it's a safe, reliable source of income. Get back to us if you want to know more.

A very informative post, tks. 

I was surprised using a like for like 100K buying a normal annuity or a PLA would produce such a difference in output. 

100K annuity gets a 5% return in that example above & the PLA gets a 4.4% return. 

So in that example, a PLA gets 12% less output than the normal annuity. 

I got a few quotes last year for annuities and PLAs using exact same amounts and I did not notice any difference in the outputs. 

Albermarle

LHW99 said:

Rule 2: You can't pay in more than 60k per year. True, but you can go back 3 years and use your unused allowance, as long as you had any pension open at that time. You say you are in receipt of a pension. Therefore you did have a pension open. Using this year, and a couple of prior years, you easily have the headroom to pay in 133k.

AFAIK,you cannot make use of the 3 years carry back allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

Yes and as the OP as no employment income and can only add £3600 gross per year to a pension, then the point made was pretty irrelevant.

Secret2ndAccount

LHW99 said:   AFAIK,you cannot make use of the 3 years carry back allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

Albermarle said:  Yes and as the OP as no employment income and can only add £3600 gross per year to a pension, then the point made was pretty irrelevant.

Come on guys, you know better than this. Simple example: I earn 100k. I salary sacrifice 75k into my pension, and my employer adds 10k. I have earned 25k, and added 85k to my pension.  In other cases, a DB can have a PIA in a year in which you earn nothing at all. The AA rules make no stipulation at all about earnings.

Albermarle, please read my post. Unrelievable Contributions. You know that the usual limit we discuss is for receipt of tax relief. It is not an upper limit on pension contributions.

Zagfles is gonna be so mad at you two

Bumdle

I have read a good bit of the debate on PLA’s  and now I am not too sure what to do. As stated beforev I am 73 years old female and have a small final salary pension from the bank I worked for. I have just come into a rather substantial legacy and did consider putting £100k into a PLA. That was until I found out that and IFA’s charge such high fees for a product which it seems you cannot buy direct. 

I have one experience of an IFA and that was with my daughter’s mortgage. Suffice to say we paid £1000 to someone who frankly did nothing so I too approach this with some scepticism. £ 2000+ when I know what I 
want ?, I am very sure not all IFA’s are bad but does anyone know of a decent IFA in Hampshire who might just trim their fee. Am I being mean about fees or cautious or maybe just stupid?,   Any comments or advice would be most welcome, 

Marcon

Bumdle said:

I have read a good bit of the debate on PLA’s  and now I am not too sure what to do. As stated beforev I am 73 years old female and have a small final salary pension from the bank I worked for. I have just come into a rather substantial legacy and did consider putting £100k into a PLA. That was until I found out that and IFA’s charge such high fees for a product which it seems you cannot buy direct. 

I have one experience of an IFA and that was with my daughter’s mortgage. Suffice to say we paid £1000 to someone who frankly did nothing so I too approach this with some scepticism. £ 2000+ when I know what I 
want ?, I am very sure not all IFA’s are bad but does anyone know of a decent IFA in Hampshire who might just trim their fee. Am I being mean about fees or cautious or maybe just stupid?,   Any comments or advice would be most welcome, 

Duplicate post. I've already asked for the 'other' one to be split out to form a new thread.

Bumdle

Thank you Marcon. I guess i have gone off at a bit of a tangent, Women's privilege !!  

Albermarle

Bumdle said:

I have read a good bit of the debate on PLA’s  and now I am not too sure what to do. As stated beforev I am 73 years old female and have a small final salary pension from the bank I worked for. I have just come into a rather substantial legacy and did consider putting £100k into a PLA. That was until I found out that and IFA’s charge such high fees for a product which it seems you cannot buy direct. 

I have one experience of an IFA and that was with my daughter’s mortgage. Suffice to say we paid £1000 to someone who frankly did nothing so I too approach this with some scepticism. £ 2000+ when I know what I 
want ?, I am very sure not all IFA’s are bad but does anyone know of a decent IFA in Hampshire who might just trim their fee. Am I being mean about fees or cautious or maybe just stupid?,   Any comments or advice would be most welcome, 

Most IFA's do not deal with mortgages anymore. Usually best to go direct to a mortgage broker if you need some assistance.

DRS1

@Bumdle I don't think anyone is going to recommend an IFA (certainly not in a public post).  It is probably against a rule of the site to do it.  The usual suggestion is ask friends and family who they have used.

LHW99

Secret2ndAccount said:

LHW99 said:   AFAIK,you cannot make use of the 3 years carry back allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

Albermarle said:  Yes and as the OP as no employment income and can only add £3600 gross per year to a pension, then the point made was pretty irrelevant.

Come on guys, you know better than this. Simple example: I earn 100k. I salary sacrifice 75k into my pension, and my employer adds 10k. I have earned 25k, and added 85k to my pension.  In other cases, a DB can have a PIA in a year in which you earn nothing at all. The AA rules make no stipulation at all about earnings.

Albermarle, please read my post. Unrelievable Contributions. You know that the usual limit we discuss is for receipt of tax relief. It is not an upper limit on pension contributions.

Zagfles is gonna be so mad at you two

Simple Example - You earn £100k. It doesn't matter that you have sacrificed so that you end up with £85k in your pension, it's the £100k employment income that counts. You can use carry back, if your current year's income exceeds £60k, and you have spare allowance from previous years.

The OP doesn't have "relevant" (employment) income, therefore they cannot use carry back.