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Purchased Life Annuity

A tax-efficient income for life or a specified term

This annuity lets you invest a cash lump sum in return for a regular, guaranteed, tax-efficient income. Depending on your needs, you can receive income over a specified term, or for the rest of your life. Just so you’re aware, you won’t be taxed on part of your income as it’s treated as a ‘return of your lump sum’.

Here’s everything you need to know about our Purchased Life Annuity ­– key features, how it works, helpful links, guides and brochures.

What is it for?

Our Purchased Life Annuity lets you invest a lump sum in return for a regular, guaranteed, tax-efficient income. You can choose to receive the money for the rest of your life, or over a specified term.

Your Purchased Life Annuity can help provide an income to pay for school fees, boost your income or to reduce your estate’s value for inheritance tax.

You’ll only be taxed on a portion of your income. This is because we class your original payment as a ‘return of the money’ you used to buy the annuity.

Duration

The Purchased Life Annuity is available to you for life or for a temporary period of time.

The Life Annuity pays an income throughout your lifetime. But if you have a joint life annuity, we’ll continue to make the payments until you and the second annuitant have died.

The Temporary Annuity pays you an income for a specified number of years, or until your death, if this occurs before the end of the term.

Age limits

Life Annuity

Minimum age – 35 attained
Maximum age – 94 years and 11 months

Temporary Annuities

Minimum age – no minimum
Maximum age – 94 years and 11 months

However, for annuitants over 80, we’ll only accept applications if they include a death benefit option in the policy.

Advice

At Canada Life, we can't give personal recommendations about the products. You’ll need to speak with an adviser to see if the product is right for you. If you're looking for an adviser, you can find our guidance here.  

Using your Purchased Life Annuity income

As well as giving you a guaranteed income from your initial investment, a Purchased Life Annuity could help you with:

  • School and college fees
  • Retirement planning
  • Inheritance tax planning

Your adviser can give you more information on how our Purchased Life Annuity could help in each scenario.

Death benefits

Your income will stop when you die unless you choose one of our death benefit options below. Your choices are:

Guarantee period

You can select a guarantee period. If you die within this time, we’ll pay your income to your beneficiary(ies) until the end of your chosen guarantee period

For temporary annuities:

You can choose a guaranteed period in whole years, which must end one year prior to the date the temporary annuity is set to end. So if the annuity payments are set up for 10 years, you can have a nine-year guarantee.

For lifetime annuities:

You can choose a guaranteed period in whole years up to a maximum of 30 years.

Premium protection

Premium protection is optional. If you select it, we’ll return some of your money as a lump sum to your beneficiary(ies) when you die. The amount we pay will be equal to the lump sum you used to buy the annuity, minus any income you’ve already received.

Joint life

With a joint life annuity, we’ll continue to pay an income until both annuitants have died. When you set up the plan, you can choose if the income paid reduces after the death of the first annuitant or remains payable at the same level as before. 

You can also choose if the joint life income is payable on the main annuitant’s death, or to a specific named person. For example, if a husband dies, they may want payments to continue at 100% for their wife. But if the wife dies first, the husband might choose to receive 75% of the previous income. You can choose anything from 0-100%.

Just so you’re aware, the income you receive will be lower if you choose death benefit options. Please ask your adviser for more details.

Tax

In most cases, HMRC allows us to treat part of each income payment you receive as a return of the original lump sum you paid. They class this as the capital element, which means you won’t be taxed on your original payment.

However, the difference between the gross income payment and the capital element is taxable as savings income. We’ll deduct basic rate tax, currently at 20%, on this part of each income payment.

From 6 April 2016, HMRC introduced a tax-free personal savings allowance. Basic rate taxpayers are able to receive up to £1,000, and higher rate taxpayers are able to receive £500 without tax deductions. Additional rate taxpayers do not qualify. If you are a higher or additional rate taxpayer and you’re subject to higher or additional rate tax, you’ll pay further tax.

If you pay tax at less than the basic rate on your savings income, or you don’t pay tax at all, you can reclaim the overpaid tax.

If you don’t pay tax and you want to receive gross income, please send us the completed HMRC form R89, or R86 for joint annuities. You can find these forms on the HMRC website

What are the risks?

Just so you're aware, you can't change or cash in your policy once we've set it up.

Tax rates may change in the future. It's important that you speak to your adviser about protecting your lump sum. This is because the total income you receive might be less than your lump sum if you die shortly after your policy starts.