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16 April 2013 last updated
Aviva pension annuity business for expats suspended by Directors

Directors at Aviva have suspended new pension annuity business for their current plans offered to expats retiring as non-UK residents with immediate effect as lawyers investigate possible breaches of US law.

Aviva have discovered potentially insurmountable hurdles with their existing pension annuity offering available to non-UK residents that have retired to other countries around the world.

Initially the problem was identified with US citizens & residents and the Directors immediately suspended the sale of retirement annuities to these individuals citing possible breaches in US law with their current terms and conditions for these annuities.

Further notification was given shortly afterwards to extend the suspension to all countries worldwide applicable to existing clients of Aviva and those seeking to purchase open market options and transfer funds from third party providers.

Aviva expat pension annuity business suspended
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Impaired annuity providers withdraw from expat market

The availability of open market option annuities to people living overseas have been reducing in recent years and in particular from providers of impaired annuities with Aviva being the latest to leave the market, although they may return to some countries.

In most cases these are individuals that are UK citizens with pension funds in the UK and retired to other countries before taking their benefits. There are a smaller number of non-UK citizens that work in the UK and have accumulated pension benefits before returning to their home countries.

An open market option allows a person to buy annuities from any provider in the market if their existing provider does not offer the highest annuity rates. Aviva have applied their suspension of annuities to both open market options and existing customers that are resident overseas.

There is a double taxation agreement between the UK and many countries around the world including the United States allowing the payment of UK annuities to non-UK residents on a gross basis, where tax will be paid locally.

Over the past year impaired annuity providers have stopped offering annuities to people living overseas. Just Retirement stopped offering impaired annuities in the summer of 2012 whereas Partnership, MGM Advantage and Prudential have not been in this market in the last five years. Canada Life offers annuities to residents living worldwide but stopped offering any open market option annuities to US citizens and residents at the end of last year due to new developments in US legislation.

Of the leading impaired annuity providers only Liverpool Victoria offers impaired annuities, a with profit annuity and fixed term annuity worldwide although some countries are excluded, including the United States.

Aviva's unisex annuity rates was leading the way by changing their proposition with the EU Gender Directive and it seems they are following the market in restricting their offering to just the UK.

It is estimated that over five million UK citizens live overseas with 150,000 leaving the country each year. The popular destinations are Australia with 1.3 million, North America with 1.2 million and Spain with 0.7 million. The United States has 0.7 million and of these 24% are retired.

Less annuity choice will cost expats

As providers pull out of the market for offering retirement annuities to people with UK pension funds living overseas, the choice and competition reduces and the income they can receive will reduce.

For people in good health with UK pension funds there are still providers offering open market option annuities to worldwide residents including US citizens and residents such as from the provider Legal & General. With Aviva's exit there are now no providers of impaired annuities with offers to US citizens and residents and only the market leader Liverpool Victoria offering most countries.

As a result anyone with a medical condition living in the US will have to accept a standard annuity or consider transferring to a qualifying regulated overseas pension (QROPS) although this route may have significant tax implications, rather than buying a UK based annuity. If they accept a standard annuity they will realise a loss of income that will apply for their lifetime.

For example, a US resident aged 67 selecting a 100% joint life, level impaired annuity suffering from with high blood pressure and diabetes would receive £5,510 pa from Aviva and this would reduce to £5,020 pa on a standard life basis or a reduction of £490 pa.

Although UK impaired annuity providers claim taxation as the main reason they do not offer pension annuities to non-UK citizens, other standard annuity providers can offer their open market option annuities and double taxation agreements specifically mention annuity income from UK pension funds as an allowable plan for people living overseas.

News related stories:
Unisex annuity rates launched by Aviva but benefits to females uncertain
Related internet links:
BBC - Brits abroad world overview
Guardian - Where do UK expats live
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