Is it compulsory to buy an annuity?

Answer: Compulsory purchase of an annuity by the age of 75 was abolished in April 2011. This means that no one who has saved money in their own pension pot – as opposed to having a pension provided for them by an employer and dependent on their final salary – is now forced to buy an annuity as they used to be.

How is a purchased life annuity taxed?

The income paid under purchased life annuities contains a capital and an income element. The capital element is treated as a return of the annuitant’s original investment and is tax free. The income element is taxed as savings income at a 20% rate of tax for basic rate taxpayers.

How does a purchased life annuity work?

A PLA provides a guaranteed income for life, in exchange for a lump sum. A PLA is an annuity purchased from an insurer. Its terms must include a life contingency. the annuity could continue after death for a specified term or according to some other specified condition.

What is phased annuity purchase?

The pension fund not encashed remains in the phased retirement plan and continues to be invested, thus providing the individual with the possibility of higher future income. The annuity is purchased by cashing in those contracts not previously cashed in or ‘vested’ to provide benefits in the form of a pension income.

What taxes do you pay on an annuity?

Are all annuity payments tax-free? No they’re not. With all defined contribution schemes, you are allowed to take the first 25% of the overall pension fund value as a tax-free lump sum. This is the only payment you can take which is guaranteed to be free of any income or capital gains tax.

What is the tax rate on cashing in an annuity?

In general, if you withdraw money from your annuity before you turn 59 ½, you may owe a 10 percent penalty on the taxable portion of the withdrawal. After that age, taking your withdrawal as a lump sum rather than an income stream will trigger the tax on your earnings.

What are the benefits of phased retirement?

Phased retirement is seen as a benefit by many older workers, as it allows them to gradually ease into retirement while maintaining a higher income than they would receive if they quit work entirely.

Where do you buy a compulsory annuity from?

A compulsory purchase annuity is bought with your retirement savings from a pension, provident or retirement annuity fund. Legally you are required to buy a compulsory annuity with a minimum of two-thirds of the payout from your pension fund or retirement annuity fund savings.

Is there an expiry date for a compulsory retirement annuity?

A compulsory retirement annuity does not have an expiry date – the annuity you purchase must provide you with an income for life. The annuity you receive therefore factors in your life expectancy at the age you take out the annuity.

What do you need to know about purchased life annuities?

A PLA provides a guaranteed income for life, in exchange for a lump sum. A PLA is an annuity purchased from an insurer. Its terms must include a life contingency. Usually the annuity will be for life, but it could be for a term ascertainable by reference to life.

Can a withdrawal from my compulsory life annuity be made?

As a matter of interest my record with Libife goes back some 50 years [Manufacturers life which was absorbed by Liblife]. Chris, “Ourselves” is 10X Investments so it is unlikely you bought your compulsory annuity through us as we do not sell such products.

Can a pension fund be used to buy an annuity?

Deal: Pension annuities will often be referred to as compulsory purchase annuities. Peter Magliocco, associate regional director at Alexander Forbes Annuity Bureau, replies: Annuities can be purchased both from pension fund money and from your own capital. Pension annuities will often be referred to as compulsory purchase annuities.