Annuity Rates, Annuities, Pensions, Divorce Annuity Rates Charts
Home News Annuity Rates Annuities Pension Annuity Impaired Annuity Annuity Quotes Pensions Divorce Resources

29 November 2019 last updated

Cash annuity up to 14pc more income than pensions at retirement
Purchased life annuity better value
  A purchased life annuity offers higher income than a pension with generous tax advantages
  More annuity topics
  Second half 2019 news
  News & articles
  Archive news stories
  Flexi-access drawdown
  Annuity rates tables
  Outlook for 2022
  Annuity rates charts
  15-year gilt yields
  Latest annuity rates

Using cash to buy a purchased life annuity produces up to 14% more gross income than a pension annuity before taking account of the generous tax advantages.

The significant fall in pension annuity rates across the board of -13.35% during 2019 has not impacted cash annuities. The purchased life annuity (PLA) allows someone with their tax free lump sum from a pension fund or cash in the bank to buy a lifetime annuity.

As rates have remained unchanged compared to providers of pension annuities the income can be significantly higher especially as the majority of income from the PLA is tax free.

Annual gross income from annuities
Age Pension Cash Increase
55 £3,640 £4,160 £520
60 £4,073 £4,520 £447
65 £4,827 £5,140 £313
70 £5,573 £5,910 £337
75 £6,572 £6,900 £328
80 £8,650 £8,750 £100

The table above shows the difference in annuity rates for pensions and cash for different ages based on a fund of £100,000 buying an annuity on a single life, no guaranteed period and level basis.

The biggest difference is for those aged 55 where pension income is £3,640 pa and with a cash annuity this increases 14.2% or an extra £520 pa to £4,160 pa.

For a 65 the difference is smaller with pension income of £4,827 pa and a cash annuity 6.4% higher or an extra £313 pa to £5,140 pa.

Reducing Income Tax

The purchased life annuity benefits from reduced income tax as HMRC deem the majority of the income as a return of capital and therefore tax free.

For many people at retirement a combination of State pension, company pension or rental income results in paying basic rate tax on any surplus income from private pensions.

By using the tax free lump sum to buy a purchased life annuity you can maximise your income by having this portion of the annuity free from tax.

For example, a 55 year old basic rate taxpayer with a pension fund of £200,000 can use the full fund to provide a pension annuity of £7,280 pa gross or £5,824 pa net.

By using the tax free lump sum of £50,000 to buy a purchased life annuity the income would be £2,080 pa gross or £2,003 pa net with a reduced pension income of £5,460 pa gross or £4,368 pa net.

This combination of pension and cash annuity gives an income of £6,371 pa net or £547 pa net more than the pension income.

In terms of total income during their life, the Office of National Statistics (ONS) would expect a male to live for 26.9 years and he will have £14,714 more income over his lifetime. For a female she can expected to live for 29.7 years increasing her lifetime income by £16,245.

For older wealthier people retiring with both pension and cash funds, the use of a purchased life annuity could result in adding significant amounts of tax free income. This leaves a substantial pension in drawdown outside of your estate offering you flexible income and options for your beneficiaries.

News related stories:
Impaired annuities rise with higher yields and prospect of Brexit deal
UK annuity rates fall 12% for the year as gilt yields reach all time low
Annuity rates fall as Federal Reserve expected to reduce interest rates
UK annuities are lower as providers react to fall in gilt yields
Pension annuities fall as investors seek safety of bonds and gilts
Annuity Rates
  Age Single Joint  
  55 £6,361 £5,898  
  60 £6,842 £6,244  
  65 £7,474 £6,843  
  70 £8,405 £7,660  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
  Annuity Rates  
Annuity Quotes
  Plan your annuity and get quotes from the 12 leading providers  
  free annuity quote Free Annuity Quotes
  annuity quote no obligation No Obligation
  annuity quote all providers From All Providers
  Annuity Quote  
  Annuity Rates News:

Annuities rise 6% to eleven year high
Annuities rise 6% to 11 year high Annuities rise 6% and gilt yields increase 90 basis points due to central bank action
Gitl yields rise 87 basis points
rise 87 basis points Gilt yields higher as investors shrug off global recession fears as base rates rise
Retirement income at record high
Retirement income soars Retirement income rises by 71.6% as yields and annuities are driven higher
Pension annuities fall on recession fears
Pension annuities fall Pension annuities fall and gilt yields are lower by -27 basis points to 2.32%
Annuity rates rise but yields weaken
Annuity rates rise 7pc last month Annuity rates rise by a record 7% for a single month but gilt yields weaken

  Follow Us:
You can follow the latest annuity updates on Twitter or as a fan on Facebook
  Facebook Page Twitter Page   This website is for marketing purposes only and does not provide specific financial or legal advice. Website security issued by GeoTrust and Equifax. Copyright©2001-22 All Rights Reserved