What is a purchase life annuity?
It’s a contract that gives you an income for the rest of your life or for a select period of years, bought with a lump sum single payment.
Want to invest some money to get a guaranteed income?
Tips on purchase life annuity purchase
Why would I buy one?
This type of annuity is useful if you need a regular income and have some money to invest. You might want to:
- top-up existing pension income;
- pay for fees such as those for a retirement home;
- get additional income until you receive your pension;
- get a regular income until other investments mature;
- provide income for a child or grandchild at college or university.
If you’ve a lump-sum to invest from a source such as:
- a sale of a house or shares;
- a tax-free lump sum from a pension fund;
- your savings;
- an inheritance;
- an unexpected windfall;
- a maturing life plan; or
- a redundancy payment,
What about tax?
Part of the income you receive is tax-free. Your gross income payments are made up of two parts, a ‘capital’ part and an ‘interest’ part. The capital part is treated as a return of your capital and so is not taxed. We normally pay the interest part after deducting tax at the savings rate. You may need to pay more or less than this, depending on your tax rate.