Purchase Life Annuity (PLA)
Anyone that is typically aged 55 or over, has a large lump sum and want a guaranteed income for the rest of their life can benefit from purchased life annuities. Most providers set a minimum lump sum of around £10,000 so often an individual will only be in this position when they retire and commute part of their pension fund to a tax free lump sum. They may also have been the beneficiaries of a will and have inherited a property that is later sold, and now they want to supplement their income.
The annuity taxation of a purchased life annuity is very favourable compared
to pension annuities and it provides a higher income net of tax. This means
that the majority of individuals on retirement that want to maximise their
pension income should commute the maximum tax free lump sum and use this
for a purchased life annuity.
Added features
A purchased life annuity can have many of the added features of pension annuities such as a guaranteed period, being paid in advance or arrears, with proportion, single or joint life annuity or level or escalating.
Usually if the purchased life annuity is escalating, this is not offered
for RPI escalation but on a fixed rate escalation basis only, typically
at 3%, 5% up to a maximum of 8% escalation. The annuity can have a dependents
income that operates on the same basis as a survivor's pension, this being
an income paid to a spouse at 50%, 66% or 100% of the annuitant's income.
Capital protection
This feature is unique to a purchased life annuity. Capital protection can be selected rather than a guaranteed period. A guaranteed period would continue to make payments up to 5 or 10 years after the annuity was purchased even it the annuitant dies.
Capital protection ensures that if the annuitant dies earlier than expected,
the difference between the gross income received and the original capital
to purchase the annuity will be paid as a lump sum to the annuitant's estate.
To provide income after the death of the annuitant, he or she can therefore
choose between a dependents income, capital protection or a guaranteed period,
all with different levels of protection and associated costs.
If you would like to know more or want a quote for a PLA please contact
us.
