Purchase Annuity Contracts
Posted by David in Annuity on 16th of August 2011Annuities are insurance contracts purchased from an insurance company with an individual’s pension fund when they come to take an income from their pensions usually at retirement. Purchase Annuity Help: This article will give you things to consider before you purchase annuity contracts.
Purchase Annuity: Why?
You will usually purchase annuity contracts around the age of 65 but you may do so from 55. Until recently however, you were required to purchase annuity contracts by 75 at latest at which point is was compulsory. But with the rule changes in April 2011 it is no longer a requirement to purchase annuity contracts by this time.
Instead, when you purchase annuity contracts, you may now leave your pension in its fund to continue growth and should you desire you may take an income up to the 100% of the GAD limit which is known as income drawdown.
Purchase Annuity: Alternatives
In addition to purchase annuity contracts or taking income drawdown you may also take up to 25% of your pension fund as a tax free cash lump sum which may be invested and used however you wish. The residual amount must either then be reinvested back into a pension fund or be used to purchase annuity contracts.
Purchase Annuity: Considerations
The Government promote the benefits of pensions as such that they provide tax relief on any investment amount up to your relevant tax limit (i.e. 20% tax relief for someone who pays 20% tax) for the contributions that they make. The fund is then allowed to grow with your continued contributions until you reach the age at which you wish to retire at which point you may purchase annuity contracts or take one of the other options aside from purchase annuity opportunities.
However, you should note that although you receive tax relief on contributions into the pension when you decide to take benefits (with the exception of the tax free cash lump sum) you will be taxed on that amount.
For example if you purchase annuity contracts and according to the relevant annuity provider you will be provided with £5,000 income per annum this when included with the State Pension you can expect to receive when you purchase annuity contracts will be subject to the lower rate tax threshold of 20% on which you will be taxed for the relevant amount.
For more information concerning pension release please contact the authors website.
