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DRAWDOWN ANNUITIES
Dr. G is a newly retired 60-year-old widowed doctor, who has a State and NHS pension and a personal pension fund of £160,000 built up from pension contributions relating to her private practice. Her State and NHS pensions are more than enough for her needs.
She does not need income from her private pension fund therefore and could simply leave it for a future time.
However she discovered that if she bought a single life non-increasing annuity this would only pay her £800 a month gross, £480 a month net of tax. She worked out she would have to live 27 years before she got her money back, and felt this unlikely!
She decided therefore to take the PCLS of £40,000 and take a Drawdown income each year at a level that should not reduce the fund. She plans to give the income (around £5,000 a year net) to her Children, as the gift should be free of inheritance tax on the basis of reasonable expenditure from income.
She now only has to live 24 years to get her money back and if she dies before age 75 at least the kids will get the remaining Drawdown fund less tax. This is a special rate of currently 35%. The payment would not normally count as part of her estate. If this is the case, there will be no Inheritance Tax to pay on this money.
Her thoughts at the moment are at age 75 to select an alternatively secured annuity, so that some of the death benefits can continue for her children rather than benefit others or the Annuity Company, but that is a long way away.
She does not need income from her private pension fund therefore and could simply leave it for a future time.
However she discovered that if she bought a single life non-
She decided therefore to take the PCLS of £40,000 and take a Drawdown income each year at a level that should not reduce the fund. She plans to give the income (around £5,000 a year net) to her Children, as the gift should be free of inheritance tax on the basis of reasonable expenditure from income.
She now only has to live 24 years to get her money back and if she dies before age 75 at least the kids will get the remaining Drawdown fund less tax. This is a special rate of currently 35%. The payment would not normally count as part of her estate. If this is the case, there will be no Inheritance Tax to pay on this money.
Her thoughts at the moment are at age 75 to select an alternatively secured annuity, so that some of the death benefits can continue for her children rather than benefit others or the Annuity Company, but that is a long way away.
Case Study (1)
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