Annuity purchase allows an individual to purchase a contract from an insurance company with their relevant pension funds when they decide to take an income from their pensions which are usually at retirement. This article will help you get familiar with the stipulations of annuity purchase.
Annuity purchase usually takes place around the age of 65 for most people, but you may take it at any point from 55, and until recently you were required to make annuity purchase by 75 at the latest. However, with the April 2011 rule changes, it is no longer necessary for individuals to take annuity purchase at any specific age and they may if they wish never take it.
You may now instead leave your pension fund where it is to continue its growth and should you wish to take your income from there up to 100% of the GAD limits allowed; this process is known as income drawdown and may be either capped or flexible. Additionally to annuity purchase and income drawdown, individuals may take up to 25% of their pension fund as a tax-free cash lump sum which can be used and invested by them in any way they desire, through annuity purchase or other means. Once the 25% is taken, the residual amount can then either be reinvested back into a pension fund or be used for annuity purchase.
As pensions are designed to be used for retirement by each individual who owns one, it is clear that they are meant to be used to provide income for them when they become pensioners and are thus no longer in receipt of working income. As such will require some support to continue living to a minimum standard they need.
Overseeing annuity purchase, Government currently feels the average person overestimates how much the State Pension provides them in retirement and thus don’t save enough. This has in effect resulted in an estimated £27 billion shortfall in the amount that should be being saved and the amount that actually is being saved for retirement. Due to this the Government are keen to promote the benefits of pensions and annuity purchase, pointing out that they provide tax relief on any investment amount up to an individual’s relevant tax threshold for the contributions made, through annuity purchase or otherwise. The fund then grows with the continuation of dues until the person reaches the age at which they decide to take their pension benefits or annuity purchase when they may then take annuity purchase or another option.
It should be noted however, that although tax relief is provided on contributions, any benefits taken (apart from the tax-free cash lump sum) will be taxed at an individual’s tax threshold amount. So if one decides to take annuity purchase, for example, and receive £10,000 per annum income (based on factors such as gender, retirement age, medical condition and more) you can expect to be subject to the lower tax threshold amount of 20% for annuity purchase.
You can also request contact details from the Pension Tracing Service by phone or by post.
The Pension Tracing Service
Telephone: 0800 1223 170
From outside the UK: +44 (0) 1782 389134
Monday to Friday, 9:00 am to 5:30 pm
The Pension Tracing Service
Copyright 2020 by Pension Tracing Service ®
The Pension Tracing Service ® is a trading style of the Millennial Wealth Ltd. We are authorised and regulated by the Financial Conduct Authority. FCA number 914746. Unit 11Flag Business Exchange Peterborough Cambridgeshire PE1 5TX. The registered company number is 11557299
This service is not affiliated with the Department of Work and Pensions or any government body. The Pension Tracing Service does not offer financial advice to our clients. However we can allocate you an Authorised and Regulated Pension Specialist.
See how we handle your data.