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Maggie

I’m boosting my income for eight years and taking a lifetime annuity.

Maggie is 58 and ran her own company. She is divorced and has grown-up children. She has recently stopped working to care for her elderly mother and has a defined contribution pension pot of £350,000. She has £100,000 of savings and owns her own home.

Maggie

What Maggie wants

I have no income for retirement other than my full State Pension in a few years’ time, so I want to use part of my pension pot to secure an income for life. It would be great to use the rest to spend as I wish. And whatever I do, I want to keep the risk low.


Maggie's idea

Buying a secure guaranteed income seems to be the best way to safely cover my living expenses. I can then use the rest to provide for holidays and so on – plus it will boost my income for the next eight years until I receive my State Pension.


What Maggie does

  1. Maggie takes one quarter of her pension pot as a tax-free cash sum of £87,500

  2. She uses £177,000 to buy a lifetime annuity paying her £7,500 a year subject to tax

  3. She uses the remaining £85,500 and buys a fixed term annuity over eight years, receiving £11,300 a year, subject to tax

  4. Maggie has no other income so the first £11,850 of her yearly income (her personal allowance) will be free of tax. The remaining income over this amount will be taxed at 20%


What Maggie gets

Tax-free cash £87,500
Lifetime annuity £7,500 a year
Fixed term annuity £11,300 a year, subject to tax

See how we worked this out

  • State Pension age66
  • State PensionNot eligible yet
  • Pension pot£350,000
  • Other incomeNone
  • Other savings£100,000
  • Property value£430,000

Year 1-8

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
Lifetime annuity £7,500 a year
Fixed term annuity £11,300 a year
Total income (subject to tax) £18,800 a year

Year 9 onwards

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
State Pension £8,546 a year
Lifetime annuity £7,500 a year
Total income (subject to tax) £16,046 a year

Important things to consider

  • Maggie has fixed income from both her lifetime annuity and her fixed term annuity, which won’t increase in value. As a result, the effect of inflation will reduce the buying power of the income over time

  • If Maggie lives beyond 24 years of taking out the lifetime annuity, she will receive more money than her pot was originally worth

  • If Maggie had any medical conditions or lifestyle health risks she could have received a higher income.

  • If Maggie dies early, she may not receive the full value of her pot

  • Buying a lifetime annuity is a once and for all decision. Once an annuity is set up and the cancellation period has expired, it can't be changed

  • Better deals may be available so it’s important to shop around

  • Once a fixed term annuity is set up and the cancellation period has expired, she may not be able to cancel or change her options

  • If Maggie dies before the end of the fixed annuity term, her children, as named beneficiaries, will continue to receive the income until the end of the plan term

  • Once a fixed term annuity is set up and the cancellation period has expired, she may not be able to cancel or change her options

  • Tax payable on the income will be taken off before payment

  • These examples are based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

  • The income tax rates and bands for Scottish residents may be different

  • The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting View - Check your State Pension 

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