Purchased Life Annuity
questions & answers
How will a Purchased Life Annuity work?
In return for a single cash payment of not less than £5,000, we provide a fixed income, to be paid in instalments at either monthly or yearly intervals in arrears. The income can be paid to either one or two persons, and may be someone other than the client, provided the youngest annuitant is aged 50 years or over.
For how long will the income be paid
Your client may choose to have the income paid either:
for the lifetime of an annuitant (or survivor of joint annuitants), or
for a specified term of between five and ten years.
The term chosen will be confirmed in the personal quotation and policy document.
What guarantee options are available?
The following guarantees provide an element of Capital Protection:
Capital Guarantee (Temporary or Lifetime Annuities). If the annuitant (or surviving annuitant) dies at any time during the agreed term, we will pay the estate the shortfall between the gross payments already made and the purchase price.
Guaranteed Payment Period (Lifetime annuities only). If the annuitant (or surviving annuitant) dies during the specified period, a discounted lump sum payment will be made to the estate. This will be calculated by reference to actuarial guidelines applicable at the time.
If your client does not elect to have either of the above guarantee options applied to their plan, the income will cease on the death of the annuitant (or the survivor of joint annuitants), even if this occurs in the early years of the plan. No further payment will be made to the estate.
Will choosing a guarantee option affect the income?
Yes. The cost of providing the life assurance element for a guarantee option will be reflected in the rate used when calculating the annuity. To illustrate the different options, personal examples can be provided on request.
How will the annuity be paid?
The annuitant will receive the first payment by cheque, with subsequent payments being made directly into the bank or building society chosen. Payments will be made monthly or annually in arrears, as agreed between us and shown in the policy document.
What about taxation?
For tax purposes, the income is split into two parts and is calculated by reference to tables agreed with the Inland Revenue and cannot change from the amount stated in the Policy Document:
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The Capital Amount – This is considered to be a return of capital and will not be subject to tax. To apply for this allowance, Inland Revenue Form PLA6, completed by the annuitant(s), must be sent with the application.
The Taxable Amount – If the annuitant is, or becomes liable for tax, the taxable amount is treated as investment income, and is taxed accordingly. Annuitants who are not liable for tax should submit completed Inland Revenue forms R89 (R86 for joint annuitants) if they wish to apply for the gross amount of income to be paid.
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