With a Purchased Life Annuity (PLA), you will not only be able to secure guaranteed income for you, it is also possible to ensure loved ones also benefit. One of the major differences between a PLA and alternative annuities is the method in which it is taxed. Also, as well as being able to purchase the annuity for life, you also have the option of purchasing one that lasts anywhere between 2 and 20 years. This fixed period of time can be beneficial for those who have a definite financial plan for the future.
PLA Vs. Building Societies And Banks
The usual method of securing a large sum of money is to place it in a bank account or building society. People who do this then withdraw money as they see fit. This seems like an appealing solution as it offers freedom and flexibility but withdrawing money constantly can put a serious drain on your pension fund. Before you know it, your money has dwindled to the point where future plans are ruined. In contrast, a PLA provides you with a regular stream of income that cannot run out if you buy it for life. This means you can make all the financial plans you want without ever worrying about them having to change due to lack of money.
Another reason why people choose building societies or banks is because they offer a certain rate of interest. This seems appealing as it is believed the extra interest will boost savings or enhance living standards. However, the interest offered by these financial institutions is often small and variable and may not even match the rate of inflation. With a PLA, interest rates will not affect your income. Once again, this ensures that your retirement plans are not compromised by the changing economy.
More Information
It is possible to invest a single sum of money into a PLA and turn it into regular taxable income. Examples of lump sum cash that can be used in this plan include:
Inheritance
Life savings
The 25% tax-free sum taken from your pension plan
A life policy that is maturing
Sale of property
Fortunate windfall
Redundancy money
There is no age limit when it comes to a PLA and it guarantees you a regular source of income for as long as you wish. This could take the form of a lifelong policy or a fixed period of time as short as 2 years up to 20 years. There are a host of reasons why you would need to use a PLA to give you the security of a guaranteed income including:
To tide you over until your pension is available
To increase your existing pension income
Additional fees such as those incurred by staying in a nursing home
A convenient income to ensure you enjoy a high standard of living until the maturity of other investments
Helping a child or grandchild through college
If you are unsure how much to invest in a PLA, contact a financial advisor immediately. Remember, you need to purchase a PLA worth at least £5,000 with the maximum investment capped at £500,000.
