An annuity is a fixed sum of money paid to someone each year, typically for the rest of their life. In 2015, the rules on annuities were changed. So, should you consider purchasing an annuity or not?

Here, Guy Dawe, an independent financial adviser from Morgans Ltd. provides some examples of how to maximise your pension for yourself and your beneficiaries. For further advice, you can contact Guy on (01225) 473954 or email

It used to be oh so simple before 1994, when the only options for dealing with a pension fund at retirement was to convert it to an annuity (a compulsory purchase annuity). If the annuitant(s) died the annuity payments stopped. Since then, pensioners have more choice, but things have become far more complex. The following case studies will illustrate some of the options available to you.


Drawdown Pensions: a policyholder could choose to draw out sums from their pension pot subject to a maximum limit and there was no compulsion to purchase an annuity with any money purchase pension fund.


From this year, Flexi Access Drawdown plans (FAD) seem to have spelled the death knell of annuities, if comments in the financial press are to be believed. However, I believe this is far from the truth.

A Flexi Access Drawdown arrangement means that anyone can draw down ANY amount as an income from the drawdown plan at any time subject to tax (up to 60%)

A FAD can be passed down the generations, potentially tax free – not just to a spouse but to ANY beneficiary, nominee or successor.

So why bother with annuities, when FAD is so flexible and the fund remains under your control even after death?


The pension liberation rules effective in April 2015 have also had profound effects on annuities.

Case One

Samantha is aged 55 with £100,000 as a pension fund and has low expectations of the performance of stock markets to produce good returns on her investments for her expected retirement at age 65.

Samantha can use a temporary annuity with a ten year guarantee INSIDE a self invested personal pension plan (SIPP). The annuity pays a cash sum into the SIPP of about £4,300 per annum tax free. This invests in cash that matures at the end of ten years with a TAX FREE lump sum of £82,000. She has guaranteed an investment return of 2.5% for ten years in excess of cash rates and inflation.

There is Nil investment risk with a minimum of 100% of what is invested returned to her beneficiaries in the event of death before age 65, TAX FREE.

Case Two

Samantha is aged 65 and retires with a £100,000 pension pot. She has modest income needs and wants the death benefits to be passed to her children or grand children.

If Samantha buys an annuity with a Value Protection, the £100,000 annuity fund is paid out on her death in full (less the income already paid to Samantha) to her beneficiaries TAX FREE, if she dies prior to 75. Over age 75 the lump sum paid to the estate will be taxed at the beneficiaries’ marginal rate of tax, which could with proper planning be TAX FREE for minors or non workers.

Case Three

Samantha is aged 75 and has a pension fund of £100,000. She wants to pass on this fund upon death to her children and grand children.

Whether or not the Samantha invests in an FAD or an annuity with value protection of a guarantee period, the lump sum payment on death is treated exactly the same way i.e the fund is taxed at the beneficiaries’ marginal rate of tax.

This is a good way to gift to grand children who are likely to be non tax payers, with £11,000 tax free from April 2016.

All of these scenarios depend upon keeping your will up to date.

Receiving Advice from Morgans Ltd

Morgans Ltd, based in Bath, has been providing professional independent financial advice since 1982.

Morgans Ltd has and will always be independent, which means we are not restricted to providing advice on products from any particular providers but utilise products from the whole market.

Any advice provided is individual and bespoke and will be relevant and specific to the client’s financial needs.

Guidance can be provided by the Money Advice Service.

By receiving advice the responsibility for that advice rests on the independent financial adviser for as long as the client and the financial adviser are alive. This means that advice provides the client with regulatory protection for their lifetime.

If you would like to receive a no obligation review of your retirement planning pension needs and gain a full understanding of how the pension freedoms may affect you then please feel free to contact Guy (mention The Private Practice Hub).

Guy Dawe: (01225) 473954 or (07738) 538631 or email

Morgan Financial Group Ltd Independent Financial Adviser tel no (01225) 429471 Fax No (01225) 445697

Morgans Financial Group Ltd 02759457 FCA ref no 159488. Registered offices at 41 Gay Street, Bath BANES, BA1 2NT