Annuity Rates, Annuities, Pensions, Divorce Annuity Rates Charts
Home News Annuity Rates Annuities Pension Annuity Impaired Annuity Annuity Quotes Pensions Divorce Resources

25 November 2021 last updated

Purchased life annuity offer 20pc more income for taxpayers than a pension
Purchased life annuity 20% more income
  Purchased life annuities offer generous tax advantages and higher net income than pensions
  More annuity topics
  Second half 2021 news
  News & articles
  Archive news stories
  Flexi-access drawdown
  Annuity rates tables
  Outlook for 2022
  Annuity rates charts
  15-year gilt yields
  Latest annuity rates

Buying a purchased life annuity benefits from attractive tax breaks producing up to 20% more income net of tax than a pension annuity, especially for older taxpayers.

Income from a purchased life annuity (PLA) benefits from attractive tax breaks as the majority of income is deemed a return of capital by HMRC.

Currently for a person with a fund of £100,000 buying an annuity on a single life, no guaranteed period and level basis aged 60 to 90 all the income is deemed as a return of capital and the income is tax free.

In contrast, if you are retired with a combination of Sate and employer pension you are likely to be a basic rate taxpayer. If you are retired and have not taken all your money purchase pensions or have pensions in drawdown, any income you take is subject to your marginal rate of tax, such as 20% basic rate tax.

Rather than using a pension to provide income, you could consider a PLA using cash from your savings where the income is 100% return of capital and paid tax free. This can result in a 14% to 20% increase in your disposable income if you are aged 75 and over.

Annual NET income from annuities
Age Pension Cash Increase
60 £3,490 £3,820 £330
65 £4,130 £4,470 £340
70 £4,840 £5,430 £590
75 £5,820 £6,900 £1,080
80 £7,440 £8,950 £1,510
85 £10,420 £11,950 £1,530
90 £15,600 £16,200 £600

The table above shows the net income for a basic rate taxpayer from pension and cash annuities for different ages. This is based on a fund of £100,000 buying an annuity on a single life, no guaranteed period and level basis.

Income from a purchased life annuity is particularly advantageous for people aged 75 where the income is 18% or £1,080 per year higher than a pension annuity, for an 80 year old the income is 20% or £1,510 per year higher and for an 85 year old this is 14% or £1,530 per year more income.

For younger ages there is still a benefit with a 70 year old basic rate taxpayer receiving 12% or £590 per year more income from a PLA compared to a pension annuity after tax and 9% or £330 per year higher if you are aged 60.

Increasing lifetime income

The purchased life annuity benefits from generous tax advantages as HMRC deem the majority of the income as a return of capital and therefore tax free.

For a 20% basic rate taxpayer aged 75 with a fund of £100,000 a pension annuity provides a gross income of £7,275 per year and after tax this could reduce to £5,820 per year.

If you use savings of £100,000 for a PLA the income would be £6,900 per year tax free generating an extra £1,080 per year.

In terms of total income during your life, the Office of National Statistics (ONS) would expect a male aged 75 to live for 11.4 years and he will have £12,312 more income over his lifetime. For a female she can expected to live for 13.09 years increasing her lifetime income by £14,137.

If you have uncrystallised pensions you can take the tax free lump sum and use this to buy a purchased life annuity and leave the balance in flexi-access drawdown.

For example, a 75 year old basic rate taxpayer with a pension fund of £200,000 can take the tax free lump sum of £50,000 to buy a purchased life annuity the income would be £3,450 per year tax free.

For older wealthier people with an estate greater than £1 million and beneficiaries liable to inheritance tax, buying a purchased life annuity using cash will reduce the value of the estate immediately.

This would reduce the potential IHT liability of the estate and provide a tax free income from the PLA. Any pension or drawdown plans would remain outside of your estate offering you flexible income to take in the future if needed and on death the option to nominate beneficiaries for these schemes.

News related stories:
Annuities rise even after yields fall due to higher interest rates concerns
Annuity rates are highest for two years despite lower 15-year gilt yields
Cash annuity up to 14pc more income than pensions at retirement
Annuity Rates
  Age Single Joint  
  55 £6,361 £5,898  
  60 £6,842 £6,244  
  65 £7,474 £6,843  
  70 £8,405 £7,660  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
  Annuity Rates  
Annuity Quotes
  Plan your annuity and get quotes from the 12 leading providers  
  free annuity quote Free Annuity Quotes
  annuity quote no obligation No Obligation
  annuity quote all providers From All Providers
  Annuity Quote  
  Annuity Rates News:

Annuities rise 6% to eleven year high
Annuities rise 6% to 11 year high Annuities rise 6% and gilt yields increase 90 basis points due to central bank action
Gitl yields rise 87 basis points
rise 87 basis points Gilt yields higher as investors shrug off global recession fears as base rates rise
Retirement income at record high
Retirement income soars Retirement income rises by 71.6% as yields and annuities are driven higher
Pension annuities fall on recession fears
Pension annuities fall Pension annuities fall and gilt yields are lower by -27 basis points to 2.32%
Annuity rates rise but yields weaken
Annuity rates rise 7pc last month Annuity rates rise by a record 7% for a single month but gilt yields weaken

  Follow Us:
You can follow the latest annuity updates on Twitter or as a fan on Facebook
  Facebook Page Twitter Page   This website is for marketing purposes only and does not provide specific financial or legal advice. Website security issued by GeoTrust and Equifax. Copyright©2001-22 All Rights Reserved