The Retirement Account compared to Guaranteed Annuity
Why an annuity when your client can have a Retirement Account Annuity?
If your client is thinking of buying a Guaranteed Annuity then why not consider taking it through The Retirement Account?
A traditional Guaranteed Annuity payment provides a rigid and inflexible income stream. This rigidity means it can be tax inefficient as clients should only ever pay tax on income they need at that time.
With The Retirement Account, if the Guaranteed Annuity income isn't needed for a period, it can be diverted into the Cash Account or into Pension Drawdown. No tax is payable as the money stays within the tax-advantaged wrapper.
The Retirement Account is in a Pension Drawdown wrapper which means all income payments from the Account are treated as Drawdown, including the Guaranteed Annuity payments.
Under a traditional Guaranteed Annuity an optional Money Back Guarantee is taxable in the hands of beneficiaries in the event of death after age 75. The payment will be an inflexible single lump sum that could result in a hefty tax bill when it’s added to their taxable income.
With the Retirement Account beneficiaries can establish their own Retirement Account and instead take the money in smaller withdrawals for tax planning or even take a regular income if they want.
Advantages of The Retirement Account:
- Total flexibility of income
- Clients don’t pay tax on income they don't need
- Clients can invest money for growth opportunities or leave it as cash and take it when they want
- Simplicity. One payment into a bank account, and only one company to talk to
- Potentially accumulate a bigger Pension Drawdown fund for beneficiaries
- As clients get older they are likely to receive a higher rate of income each time they buy a new Annuity, and if their health has deteriorated, they may benefit still further from an enhanced rate.
What the Retirement Account doesn’t offer compared to the standalone Guaranteed Annuity:
- The Retirement Account only allows transfers on an Immediate Vesting Personal Pension (IVPP) basis. Transfers on an Open Market Option (OMO) basis are not available with this product
- The ability to take more than 25% of the fund as tax-free-cash (i.e. protected tax-free cash) is lost with transfers on an IVPP basis
- Proportionate payments (part of the next scheduled income payment will be made on death, based on the number of days since the last income payment was made)
- Overlapping payments (if death occurs within the guarantee period, the income payments to the dependant will start at the next scheduled payment date even though the balance of income payments over the guarantee period are also being made (so the two payments overlap))
- The option of taking income half-yearly