C.E. Hill & Co. Ltd
Chartered Accountants and Business Advisers
Immediate Vesting Personal Pension
If you are aged over 55, there is a way to generate a much higher income: the Immediate Vesting Personal Pension (IVPP).
Everyone under the age of 75 is entitled to pay at least £3,600 into a personal pension each year. By doing this and taking immediate income, it is possible to get high rates of return.
How it works:
| Anyone over 55 can pay into
Personal Pension: |
£3,600 | |
| Pay to Pension company: | 3,600-20% | £2,880 |
| Pension company get tax relief
from HMRC: |
£720 | |
| £3,600 | ||
| Tax free lump sum: | 3,600 x 25% | (£900) |
| Interest in annuity: |
£2,700 | |
|
Annuity rate of 4.6% |
||
| What you get: | £2,700 x 4.6% | £124 p.a. |
| What
you have paid: |
£2,880 |
|
| (£900) |
||
| £1,980 | ||
| That
£124 each year for the rest of your life equates to a
pre-tax rate of 6.3%for a basic rate taxpayer and 9.8% for a
40 per cent taxpayer: |
||
| £1,980 x 6.3% |
£124 p.a. | |
What's the catch?
- You lose access to your savings and, once you've bought the IVPP, it cannot be changed.
- The income from the annuity is taxable. The IVPP works particularly well if you are a higher rate taxpayer and when you retire will be a lower rate taxpayer. You cannot buy one until you're 55.
- Your income stops when you die. However, life expectancy at age 65 in the UK is 17.6 years for a man and 20.2 years for a woman.
Best annuity rates:
| Male Aged 65 | ||
|---|---|---|
| 1 | Canada Life | 6.61% |
| 2 | L&G | 6.46% |
| 3 | Aviva | 6.23% |
| Female Aged 65 | ||
|---|---|---|
| 1 | Canada Life | 6.22% |
| 2 | L&G | 5.92% |
| 3 | Aviva | 5.88% |
Standard Life Immediate Vesting Pension:
| Male & Female |
|||
| Current age |
Gross annual income (will not increase) |
Total income over average lifetime (net investment £1,980) |
Income from effective investment (%) |
| 55 |
£93.15 |
£2,887.65 |
4.94 |
| 65 |
£124.13 |
£2,730.86 |
6.69 |
| 74 |
£176.21 |
£2,466.94 |
9.77 |