Lifetime Annuities & Scheme Pension case study

Jack:

  • Is 65 years old
  • Will be fully retiring and doesn’t intend to work again
  • Is looking for a guaranteed income for the rest of his life
  • Wants an income that keeps pace with inflation
  • Wants to access all his tax-free cash

 

A retirement solution

Jack plans to retire now and wants the certainty of a guaranteed income for life as well as access to all his tax-free cash. He is risk averse and does not want to take any risks that could affect the level of income he requires.

Jack’s pension pot, after he takes his tax-free cash, is worth £120,000. Jack is married but his wife Sandra still works and has her own pension provision when she retires in five years’ time. He would like to know that she could have access to some income should he die before that time.

Jack elects to purchase a lifetime annuity with some inflation proofing, which will increase in line with the retail price index but capped at 2.5% and pay him a yearly income of £4,000 (this figure is for illustrative purposes only and actual annuity rates and subsequent income could be higher or lower). When combined with his state pension Jack feels that he has enough income to cover his essential outgoings as well as provide him with some discretionary spending.

He also chooses a five year guarantee period, so that should he die within the first five years, his wife Sandra will continue to receive the income payments for the remainder of that period. For example, if Jack died within two years of receiving his annuity, his wife would receive the annuity income payments for the rest of the guarantee period, in this case three more years.

 

Jack could have:

  • Elected to purchase an annuity without inflation proofing, where the starting level of annuity income would have been higher, but he had concerns that in future years this may leave him with insufficient guaranteed income as it would not be keeping pace with inflation.
  • Considered buying an annuity with value protection which would have returned a payment equal to the amount of money used to purchase the annuity, less any income paid out (Canada Life’s value protection expires at age 75).
  • Considered a longer guarantee period (of up to 30 years) however, buying a longer guarantee period or including value protection would have reduced the starting income and he did not feel this was appropriate.

 

Key benefits:

  • Access all your tax-free cash at the start
  • Have a guaranteed income for life
  • Choose the frequency of the payments (monthly, quarterly, half yearly, yearly)
  • Choose to have annuity income payments in arrears or advance
  • Choose a level, escalating or index linked annuity income
  • Allows for either single or joint life options
  • Death benefits can include guarantee periods (up to 30 years) and capital protection (up to age 75).

 

Important information:

An annuity cannot be cancelled (other than within 30 days from the date you set your annuity up), or assigned to someone else (until legislation is in force to allow this) and cannot be altered once the policy is in force.
Annuity rates can go down as well as up depending on market conditions at the time you buy your annuity.
Depending on the payment option selected, inflation could impact on the purchasing power of your income over time.

 

Who might it be suitable for?

  • Those who are aged 55 or over; and
  • Looking for a guaranteed income for life
  • Who are risk averse or cannot afford to take any risk with their income

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.