Don't miss this innovative annuity that allows you to ‘have your cake and eat it’
An Annuity That Pays You An Income, Reduces Your Tax And Protects Your Money For Future Generations
Keep Control Of Your Money, Even After You’ve Bought Your Annuity Income
The biggest problem with an annuity is that when you exchange your hard earned cash for an income, you and your family lose the right to your money. And because we’re in a sustained period of low interest rates, unless you live to be a ripe old age of 100 or more, chances are your total annuity income will never replace the money you give up.
It follows that if you’re the loser, someone has to be the winner. In the case of an annuity, it’s usually the insurance company that provides your income. Once you’ve handed over your cash, your money is their’s to do as they wish. But it doesn’t have to be that way.
You could buy an annuity where your money was available to your family and other people you nominate when you die.
It's A Fully Flexible, Tax Efficient Annuity For You
The annuity in question is a Purchased Life Annuity. It’s similar to the sort of annuity you’d buy with your pension fund, except it has a more generous tax treatment. Part of your income is deemed a return of your capital. It means that HMRC only taxes you on part of your income, not all of it, as in the case of a pension annuity.
It’s also efficient from an Inheritance Tax viewpoint, for the money you use to buy your annuity is no longer part of your Estate.
Your annuity is calculated just like a pension annuity, being based on your age and applicable interest rates. But unlike a pension annuity, it can be bought on a single or a joint life basis, which means your income will continue uninterrupted when the first person dies. It can be purchased at any age (normally from age 18), with the income becoming payable at age 55 (or later if required), though in special circumstances, payment may commence earlier.
If you don’t need the income now, you can arrange for it to begin at a later date, though normally not beyond age 75. That’ll give your fund the chance to grow in the meantime, which could result in a larger income when you draw your annuity. And because you'll be older when the annuity starts, the amount of income payable is likely to be greater too as annuity rates generally increase with age. Income can be paid quarterly, half yearly or annually, directly into your bank or building society account, on a gross basis.
There's only one downside. The minimum purchase price for this annuity is £500,000. But it can be made up with money from your SIPP, your cash, or both.
You Choose Who Gets Your Money When Your Annuity Stops
When you buy your annuity, the insurance company transfers your money to a Special Purpose Vehicle (SPV), which is overseen by regulated companies. The SPV is unique to you, so your money is never mixed with the assets of any other investor. The key point is that the money is no longer owned by the insurance company. It’s owned by your SPV.
The SPV works closely with your advisers to manage and implement a suitable investment model that reflects your desires and risk profile. It will only contract with appropriately qualified and regulated investment advisers or managers.
Depending on the annuity you have selected, income is transferred from your SPV to the insurance company. The insurance company then pays your annuity income, either directly to you, or into your SIPP.
On your death, the money remains invested in the SPV. The assets are available to continue paying an income to your spouse or dependants, or they can be placed into a structure for long-term family planning, or for distribution to people of your choosing.
Above all, your money is available for your family, and it hasn’t been lost to the insurance company paying your annuity!
What’s In It For The Insurance Company?
The insurance company charges an initial fee when your annuity is set up. It charges a competitive annual administration fee based on the value of your assets. And on your death, a final fee based on the value of the assets in the SPV. Your investment adviser’s fee can be paid from the SPV.
If you have cash and pension funds of £500,000 that you’re willing to allocate to this annuity, and you’d like further details, please send us a message using our contact form.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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