12

Oct

‘Looking for a high level of Guaranteed Income for Life?’

If you have a lump sum to invest then a Purchased Life Annuity could be the answer since the net income from a purchased life annuity can be up to 30% higher than the interest from a bank or building society account due to the lower tax charge applicable. The majority of the income is deemed a return of capital, a figure which increases with age. The level of income will not fluctuate as with bank interest and is guaranteed for the whole of your life.

A Purchased Life Annuity is normally available to a person aged 55 and over, who has a large lump sum to invest and requires a guaranteed income for life. The minimum lump sum necessary is around about £20,000, the product is often utilised near or at retirement and is frequently funded by the Tax Free Cash payment available from most pension plans. However, the money for a Purchased Life Annuity can come from any source.

The taxation of Purchased Life Annuities is very favourable compared to that of pension annuities and they provide for a higher income net of tax. This means that the majority of individuals at retirement that want to maximise their pension income should commute the maximum Tax Free lump sum and use this for a Purchased Life Annuity.

A Purchased Life Annuity can also include 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 basis, level or escalating. This includes the provision of a dependent’s income paid to a spouse.

Capital Protection

This feature is unique to purchased life annuities. Capital protection can be selected instead of a guaranteed period. A guaranteed period allows for the continuation of income payments for up to 5 or 10 years after the annuity was purchased even if the annuitant dies within this time period.

Capital Protection ensures that if the annuitant dies earlier than expected, the difference between the gross income received and the original capital used to purchase the annuity will be paid as a lump sum into the annuitant’s estate.

To provide income after the death of the annuitant, a person can therefore choose between a dependents income, capital protection or a guaranteed period, all with different levels of protection and associated costs.

Long Term Care Costs

Around half a million people are in care homes in the United Kingdom and only a small proportion receive some kind of assistance from the state with the balance of the cost provided from savings or the proceeds from the sale of a family home. To allow family members greater control of the finances it is possible to at least partially meet these high costs by purchasing a Purchased Life Annuity or alternatively, depending on a person’s medical condition, an Immediate Needs Annuity.

Many people with elderly relatives are aware that long term care is a problem and has many associated costs. These costs can quickly erode assets such as savings and the family home. It is possible to use a Purchased Life Annuity or Immediate Needs Annuity to help pay the costs of a rest home or nursing home.

In the UK there around 9 million people over the age of 65 and so this issue is likely to arise on an ever more frequent basis.

Please contact us for further information in relation to any of the above matters.

Stiles & Company Financial Services (Petersfield) Limited is a firm of Independent Financial Advisers dedicated to providing a highly professional service to our clients, spread predominately across Hampshire, Sussex & Surrey.

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