Most people approaching retirement have heard of an Annuity, we’d hope the message about the benefits of Enhanced Annuities is getting through to would-be retirees too, but the close cousin of both, the Purchase Life Annuity, is still in many ways the best kept secret of retirement planning and in our experience often overlooked by IFAs.
We thought we’d take a look at the Purchased Life Annuity, or PLA for short, in more detail and see whether it could benefit you.
If you would like to know more about how a PLA works along with the key advantages and disadvantages you can find out more by clicking here.
Who is a PLA suitable for?
Retirees looking to maximise income Many retirees don’t want to take the tax free lump sum from their pension, preferring instead to have a higher guaranteed income for the rest of their life.
That’s fine, but a using 75% of the fund to buy a Lifetime Annuity and the 25% tax free lump sum to buy a PLA, can often produce a higher net income, simply because of the preferential tax treatment that the PLA enjoys compared to a Lifetime Annuity.
Remember also that the income from a PLA is guaranteed in the same way that a Lifetime Annuity is.
A guaranteed income Many retirees looking to maximise their income will take the tax free lump sum and invest it, perhaps in ISAs (Individual Savings Accounts). Whilst this option has the advantage of allowing future access to the capital it rarely produces a guaranteed income, after all stock markets fluctuate and interest rates change.
A PLA therefore can be an attractive alternative if you are looking for a guaranteed income for the rest of your life, and perhaps that of your partner.
Retirees with health problems Most retirees know about the benefits of an Enhanced Annuity, which can provide a higher income due to health or lifestyle issues.
Well, a PLA can be ‘enhanced’ too.
Even relatively minor health problems, which you give little or no thought to on a daily basis, can qualify for an Enhancement.
Investors looking for a higher level of guaranteed income A PLA doesn’t have to be bought with the tax free lump sum from your pension, you may be simply looking for a higher level of guaranteed income that you can get from a traditional savings account. If you are a tax payer and around retirement age a PLA could give you a higher level of guaranteed income than it is possible to get from a bank or building society account.
Our research shows that PLA could provide 47% more net income, assuming a the purchaser is a basic rate tax payer, compared to a five year fixed rate bond, for an investment of £100,000.
That equates to £1,703 extra each year.
Of course you will be giving up access to your capital and you need to weigh this up against the higher level of income you could enjoy.
Simplicity A PLA is a relatively simple income producing product, once you have selected the options which are right for you and the income has started, it will never change (other than any indexation options you have included). You know that each month the income is guaranteed, allowing you to plan your finances with more security than is perhaps the case with other investments where the info me will fluctuate.
Purchase Life Annuity providers
There are less PLA providers than there are Lifetime Annuity providers; however some large insurance companies, such as Aviva, Standard Life and Canada Life all offer PLAs, helping to promote competition in the market.
As with all financial products a PLA is right for some people but not for others. Our team of Independent Financial Advisers are experts on recommending the right solution for your needs.
If you would like to know more about PLAs and find out whether they have a part to play with your retirement planning then call one of our team today on 0115 933 8433, alternatively email firstname.lastname@example.org or complete our online enquiry form.