Annuities
 

I am shortly going to be 64 and was wondering about getting an annuity next year. I admit it is all a new area for me so any information is welcome. I would simply buy it with savings.
FIrstly- can you buy a UK annuity if resident in Spain ( all the initial questionnaires ask for UK post code?
Secondly - I assume it is taxed in Spain as a pension and therefore part of your income?
Thirdly- once you buy it does the amount you pay not exist as an asset ( if you have 100k and buy an annuity then you don't have to declare the 100k on Modelo 720? ) Or does it simply mean that you have a 100k annuity as an existing asset?
Fourthly- are annuities good idea?

Re: Annuities
 

Am I missing something??
Why would you put 110k into something that might never get the 100k out of. When savings are tax free here in Spain. You only pay tax on the interest.
What happens you need 20k for an emergency???

Looking at L&G 100k would give you less than 5k a year in income.
I have maybe twice that in my pension pot and I take 15k a year and the pot is only down by around 10k and Ive been drawing for four years.
If I want a cash amount I just ask for it..
Dont forget that you will put yourself in a higher tax bracket when adding the payment from the annuity, something that wont happen if you keep the money in cash.

Thing with annuities is, will you live long enough to get the full sum back.
The L&G one says at 65 you would have to live 25 years to see the return of the 100k..

Id stick with cash, put 50k in premium bonds and the rest in a standard high interest earner. That way you always have almost instant access to the money and its not taxed....

Re: Annuities
 

What options are available to non-UK residents? I’ve seen several offshore options and NS&I products but always on the lookout for something I might’ve missed.

Re: Annuities
 

Well there must be a huge number of daft people out there as annuities are apparently extremely popular. The quote I got was actually £6900 - which seems quite good. However,thanks for advice but premium bonds???

Re: Annuities
 

There aren't any except for the NS&I
I didn't bother as cash is king for me.
Why pay tax twice???

My money and I will spend it as and when I want.
Other people can invest and then leave it to the kids or governments if they want...

Re: Annuities
 

Why not premium bonds???

Almost instantly available if you need them. Two chances a month of 'winning' a million and we get a return of about 8% on the amount we have.
My tax bill here was doubled this year because we had a reasonable win last year, not an issue.
Works for me the rest paid for the trip to Oz to see my daughter get married....
Oh and a pound is still a pound (less inflation but again dont care)

Re: Annuities
 

8% is a lucky win ( well above average I imagine). I doubt you get much more than 3% at moment. Besides everything like savings interest is high because of BOE trying to control inflation. Now inflation is dropping interest rates will drop. No one wants high interest rates in a world where borrowing is king. A few years ago you were struggling to find anyone offering over 2% unless you were willing to take risks. Surely annuities give people peace of mind as you know exactly what you are going to get for the rest of your life instead of switching the heating off because you didn't get enough premium bond wins.

Re: Annuities
 

"Two chances a month of 'winning' a million and we get a return of about 8% on the amount we have." You are very lucky / fortunate. I had 50,000 in Premium Bonds for several years and my return was circa 3.00% AER.

Re: Annuities
 

Income from an annuity (provided it is one which has been purchased entirely with an individual's own funds, ie not from a pension fund to which an employer has contributed) is taxed very favourably in Spain - if you took it out when aged 60-65 you would only be taxed on 24% of the income - so that is one advantage of them. However, if in the future you decided not to stay in Spain that advantage would be lost. I am not a fan of them personally, mainly because if an individual takes one out and dies after only a few years then the entire capital is lost. I prefer to have money invested in a SIPP which can be taken as drawdown income and can benefit from capital growth. I have a UK one, I am not sure whether it is possible to set a new one up as a non UK resident now, since Brexit. With a SIPP you can have a nominated beneficiary and (under current UK tax rules which may change at any time) if you die before reaching the age of 75 the pension fund does not form part of your estate for IHT purposes and the beneficiary will receive the entire fund and can withdraw it all free of tax if they wish. If you die aged 75 or over then the beneficiary still gets the fund but will pay tax on any withdrawals.

Tax Agency: Life annuities (agenciatributaria.gob.es)

Re: Annuities
 

Thanks Lynn. Interesting about how they are advantageous in Spain. And yes, Labour have an eye on taxing pensions as part of IHT so I think that is definitely going to change next month much to people's annoyance.

From what I can see the real drawback is if you want to leave money for family on death. TBH single folk with no children then annuities are a good deal. If you have a partner maybe not or children. The other disadvantage I read about is the fees - these tend to cut into things which is a bit off putting.

Re: Annuities
 

There aren’t many that will especially main stream. I missed opening with one of the popular companies by a couple of days in the time between when I decided to open to when I actually did it. Another provider has since closed the door too.

While people are still UK resident should open a SIPP and drop a small amount in there so that you can transfer into it at a later date if required.

Re: Annuities
 

One ironically good (or not) thing is that if you are taking things like blood pressure meds etc you get a slightly higher payment ( because statistically you might die earlier!!! - not good thing!!!

Re: Annuities
 

I've had mine since before the referendum vote and have been allowed to keep it, although they know I am tax resident in Spain. However, the provider informed me that although I can sell funds at any time to take drawdown income, or hold them as cash, as a non UK resident I would not be allowed to sell then reinvest the funds in new investments, which is very annoying as I'd like to move some of mine into better performing funds. If I were ever to return to the UK I could then, of course. But the fund is only a very small one which I don't take any income from as it's not needed, so not vital.

Re: Annuities
 

Thats why all my spare cash during the late 80s and 90s went into my private pension.
I can draw whatever I think I need (until the pot is gone) but on my death, my wife will get a % to continue to take as a pension. Both the kids get a % but they cannot access until they reach pensionable age.
If I live another 20 years (I will be 82) The pot should be Ok for them. I wont need as much once I get my OAP.
When I'm 82 my daughter will be 52 and the boy will be 50 so they will still have 15 plus years to go before retiring.
So they will benefit from the growth their % of pension makes in those years. Unless I spend it on fast women and cheap cars.

Win win.
I cant ever see that giving someone money for them to give you back approx what the interest is on that money ever sounds like a good idea and the younger you are the less you get.
Thats like betting on a three legged horse in a race. You aint never going to win.
100k in a decent bond would pay more than most Annuities would. But Im not rich enough to have that kind of cash to squirrel away.
As Ive said I would rather spend the lot if I can.

Re: Annuities
 

1. If you cash in a fund you will pay tax at your highest marginal rate. That will more wipe out anything you could possibly do with the remaining money.

2. To qualify for favourable tax treatment in Span an annuity must have been bought wholly with your own money, that is with zero contributions to the fund from employers. In UK that is rarely if ever going to be the case.

3. In the late 80's/early 90's some pension providers were offering plans with GAR's (Guaranteed Annual Returns) which were completely unsustainable in the medium, let alone the long, it's what broke Equitable Life who at one time were offering GAR's of as much as 15% PA. if you happen have one of these then think very carefully what to with it!

I had such a scheme with an old employer but with much lower GAR of 5% so come the time I retired at 62 there was no viable option but to use the money to buy an annuity. The fund was a modest £35k and when I bought it in 2013 it started off paying out £109/mth, 5% PA compounded over 10 years means for 2023/24 it's now stands at £186!
At that rate I only have to survive another 6 years, which :fingerscrossed: I believe I have a very good chance of, to recover that initial £35k outlay, then it will be paying a few pennies short of £250/mth!

On the other hand I have a second annuity, again bought for £35k, but paying out at a flat rate of £122/mth. To break even on that I will have to live another 13 years or until age 87 and that's a significantly poorer prospect :(