Purchased Life Annuity (PLA)

A purchased life annuity is like any other annuity except the investment comes from your own money rather than your pension fund. The amount of income you get from the investment will be subject to the normal variables such as age, health, location but will also be dependent on the return of capital, plus growth. They can be very tax efficient because only the capital is taxable, not the growth. Growth is usually low as the annuity provider will only invest in low risk funds in order to ensure that they can pay meet their payment requirements.

Whether they prove to be a good option for an individual depends on how long they live for, should you pass away soon after buying one then it will have not been good value as you have received payments for a short number of years. Unless you factor in a joint-life option the income will not be passed to your partner or spouse. However if you live for a longer than average time in retirement then this type of annuity could prove beneficial as you will receive payments for a longer number of years. Purchased life annuities pay on average a lower income compared to the equivalent fund exchange for a level annuity because the average member of the ‘pool’ of PLA annuitants tends to be younger and healthier than the average ‘pool’ of annuitants. As this is the case with PLA annuitants on average living longer and being more healthy, actuaries adjust accordingly and offer a lower annual income on average.

Why buy a purchased life annuity?

If you need a regular income and have a sum to invest, but want to do so tax efficiently then a PLA annuity could be suitable. Here are some reasons why people opt for purchased life annuities. Below are some of the typical reasons why many retirees have a lump sum to invest.

  • House Sale
  • Share sale
  • Tax free lump sum from a pension
  • Savings
  • Inheritance
  • Lottery win
  • Maturing life plan
  • Redundancy money

And here are some of the reasons why you may want to buy one…

  • Supplement existing income
  • Pay for care home fees
  • Get an income until you get the state pension
  • Get an income until other investments mature
  • Pay for University fees