DSR Asset Management Overseas Property Investments

Government currently feel the average person over estimate how much the State Pension provides

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 is usu­ally at retire­ment. This arti­cle will help you get famil­iar with the stip­u­la­tions of an 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 take annu­ity pur­chase by 75 at lat­est. How­ever, with the April 2011 rule changes it is no longer required for indi­vid­u­als to take annu­ity pur­chase at any spe­cific age and they may if they wish never take it.

Annu­ity Purchase

You may now instead leave your pen­sion fund where it is to con­tinue its growth and should you wish actu­ally 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/or 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 and as such will require some sort of sup­port to con­tinue liv­ing to a min­i­mum stan­dard they require.

Over­see­ing annu­ity pur­chase, Gov­ern­ment cur­rently feel the aver­age per­son over esti­mate 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 con­tri­bu­tions 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 decide 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.

Cash Pen­sion