Enhanced Annuity and/or end of life annuity

[invest21c]

I am wondering how best to approach quotes for Enhanced annuity, following a very recent Stage IV Cancer diagnosis (meaning termnal/non curable).

I've always stayed away from IFAs and managed my own financial affairs and investments.

I am 75 female. I have a state pension about £12K p.a.

I have Sipps about £500K not vested.

Other investments, in ISAs, in Cash due market volatility as present, also in investment trusts, shares, gold, dollars. My own home is mortgage free. Until now, I have lived off maximising CGT allowance, dividends, moving capital to ISAs for tax free.


I now need to streamline my finances for ease of management.

I am really having difficulty with knowing where to go to start with specific attention first to enhanced annuity quote process.

I would very much appreciate any ideas as how to go about putting in place an enhanced annuity to cater first for daily needs (consider for later if end of life care provision needed or possibly from capital, as there is an IHT issues as well)

The purpose of this posting is to make myself start on the next steps and research particularly of enhanced annuities in the first instance.


(location Surrey, if anyone genuinely able to recommend a reputable financial adviser......... I know I need to get on with this.)

[JohnB]

Sadly it sounds like you financial position is a lot better than your medical one, and you are very unlikely to run out of money. So an annuity might take monies that you could use for inheritance or charity and convert them into a highly taxed income you don't really need (45% income tax is painful compared with spending capital with perhaps 10% CGT). Do you have an idea how the cancer might drive your care needs, say for 24-hour live in care at home, or a nursing home. If you price them for an longer life, how fine might you be cutting it? The longer the timespan, the less attractive cash is compare with a single global index tracker ETF. Do you have someone you trust to handle financial and medical powers of attorney, as getting those in place would be a good first step.

I'd create a spreadsheet model to run the different scenarios.

[invest21c]

Thank you John, your response is appreciated.

1. Spreadsheet scenarios, yes agree.

2. Tax efficient, always at my heart.

3. Now simplicity rises up the priorities.

4. Yes I have 2 sons, 1 accountant as joint Power of Attorneys, those processes underway...... and agree critical.

So my thinking is simply around at this point Interest Rates are higher, plus the Enhanced Annuity potential to provide income up to but not beyond basic rate tax.


(purpose of this is to quit playing around with where next 6/12 months funding is coming from each tax year. I can't expect others to fiddle with all that. and... always intended to vest pensions at age 75, prior to which they sat outside the IHT net. Never intended annuity route, until this medical situation).

5. So yes, spreadsheets/scenarios - ONE of which is explore Enhanced Annuity............... it is a roll of the dice on how long one lives....... If the provider wins, the IHT bill reduces............. If I win, I stay at basic rate tax and no fiddling around to generate annual funding.

6. Needs thereafter (for time being) out of capital, with clear Lasting Power of Attorney x 2 on financial and health needs.

Thank you for allowing me to 'talk' this through.

I am curious still as to where to start on Enhanced Annuity quotes as I believe will do better going out through a broker than through a compare the market type approach........

Any input very welcome (and please feel free to put out any questions, none of us know, inc the medics, how long I will be here for......... I do not intend going quickly ..... tho not in my hands ......... I could be here for 2 or 3 years, or 5 or 8 years or even 10...... who knows!

Ideas on Enhanced Annuities or any experience really appreciated!

Tks. B.

[Laughton]

Very sorry to hear about your situation B.

I'm definitely no expert but, like you, have always liked to minimise tax paid. Suggest that you double check the position regarding pensions and IHT. As far as I'm aware, your SIPPs sit outside IHT net irrespective of your age. It's only the ability to take all the value out as a tax free sum that changes after 75. The SIPPs still sit outside your estate and beneficiaries can drawdown and only pay tax as though it were part of their income. I'm pretty sure that this can pass down generations - you don't say whether your sons have families (grandchildren also have a tax free allowance).

Someone more knowlegeable than me will no doubt be along shortly to explain how I've misunderstood pensions and tax but, in the meantime, I can recommend watching this:-

https://www.youtube.com/watch?v=jEbYkc1EwZc.

He produces other short videos which you might also find useful.

[GrahamPlatt]

You have two sons, one of whom is an accountant, or you have three people with power of attorney - one of whom is your accountant? Please clarify. Very sorry to hear of your predicament. My knee-jerk reaction would be to steer clear of annuities. Having taken great pains to avoid giving money to HMRC, why give it to a pension provider? Sorry if that sounds callous - not intended to be. And again sorry - I was assuming you knew, as Laughton has pointed out, that your SIPP forms part of your estate.

[Laughton]

"doesn't".

[GrahamPlatt]

"doesn't".

Yes, what I meant was that it isn’t a total write-off, as an annuity would be.

[AJC5001]

"doesn't".

Yes, what I meant was that it isn’t a total write-off, as an annuity would be.

Why would an annuity be a "total write-off"?
Once purchased, an annuity will pay out until death. You effectively take a bet with the annuity provider that you will live longer than they think you will. They have an advantage in that they have the data on life expectation over lots of annuities, and they work on averages - some they win and some they lose.

Adrian

[Shelford]

I'm sorry for your predicament. My view is not all financial here.

In your shoes, my first consideration would be a bucket list - what would I like to do in next 12/24/60 months. Be generous with yourself. Take the kids and their families on a great holiday; get that dress; stay in swanky hotels etc.

In your shoes, I would not be looking at an enhanced annuity, given you have sons whom (I presume) you wish to leave any surplus to.

To be hard-nosed about it, if you have Stage 4 cancer, you would be an outlier if you lived another 10 years.

You have £12500 in state pension. I'm assuming a huge amount here, but I assume £50K p.a. would be fine to live on.

Why not take £50K per annum to complement this for the next five years.

If you need to pay for a care home, selling your existing home will likely more than cover any fees.

One thing to consider is to enjoy life now while your health is relatively good. It may not always be like this.

[Kantwebefriends]

If you decide to leave your SIPPs untouched so that younger generations will benefit from them do remember that it's possible to buy an annuity with money outside a pension fund. "Purchased Life Annuity" is the name. The income tax rules on it are favourable to the annuitant.
https://www.mandg.com/pru/adviser/en-gb ... 0to%20life.

There's also a beast called an Immediate Needs Annuity. To quote the government advice service: "If you need a regular income now to pay for care at home or a care home, an immediate needs annuity (or immediate need care fee payment plan) could be worth looking at. The income from this type of annuity is tax free if it’s paid directly to the care provider."
https://www.moneyhelper.org.uk/en/famil ... ds-annuity

On the Monevator blog there used to be a chap Mark Meldon who wrote well on annuities and insurance.
https://monevator.com/annuities-guarant ... -for-life/

[invest21c]

Many thanks for all the replies, all of which are appreciated.

I will look at this further tomorrow.

Thank you for your patience, it is helpful to post this somewhere to clarify my own thinking.

First and foremost incredibly grateful to the way the NHS and Royal Marsden have so quickly responded including with relatively new targeted therapy.

Enough for tonight, thank you all.

Any further comments or ideas very welcome.

[xxd09]

Very sad situation
My feelings as a 77 years old retiree…..
If you have a successful investment policy (which you seem to have) why not continue on down this road
Running the portfolio will keep your mind off other pressing matters
You have power of attorney in place with a presumably financially savvy accountant son
Just instruct him what to do as you become less able-he will have to manage your finances anyway sooner or later
I suppose if you don’t fancy this investment policy purchasing an annuity will make life very simple-you will pay a lot of tax and leave no inheritance but it is another financial avenue available to you
You have made enough-enjoy your remaining time
xxd09

[Alaric]

y purchasing an annuity will make life very simple-you will pay a lot of tax

That's not really the case when an annuity is purchased by an individual. It's only taxed on the interest content, in other words much of the payment is treated as a return of capital. The tax would be much the same as if the money was on deposit or invested in Gilts or Corporate Bonds.

[MDW1954]

I wouldn't take out an annuity, enhanced or not. Live off the capital (consuming it where do-able), and pass it on. Annuity companies are profitable enough.

MDW1954

[xxd09]

Apologies invest21
Tax for Annuities appears to be less than I thought (thanks Alaric)
xxd09

[Laughton]

It's why I come here - always a chance to learn something useful.

[Dod101]

If I were the OP I would plug in some figures into a site on the internet. There are a number of sites but I found My Pension Expert (about which I know nothing). Plug in your numbers (basically your age and the amount you have or want to commit to an annuity.) That will give a number for a standard life at the OP's age. Then ring them up and explain the health situation. They will probably want a lot of detail because the best rate can only be derived from the full health situation.

She could probably improve on that but annuity rates vary all the time and especially at the moment where the trend in interest rates is not exactly stable. That number though will give her something to think about. Of course the capital is more or less gone but there are a lot of different sorts of annuities and some I think involve a guarantee of a minimum number of years of benefit and so on. This is a very specialist area though and it is vital to get advice from someone who is a specialist and up to date with what is available.

Annuities are a bit of a gamble with the capital but it is like buying anything. If you buy a new car the money is gone but you have a nice shiny new vehicle. With annuities your capital is gone but instead of the new car which can sit on your drive, you are getting a financial guarantee of an annual payment for life with no effort on the part of the purchaser, and as has been said, only a modest part of the annual payment is subject to income tax so in some circumstances they can be a valuable arrangement. With relatively high interest rates at the moment annuity rates have suddenly improved dramatically. They can of course be index linked and coupled with various guarantees but that will affect the immediate benefit that she will receive.

Hope some of that may help.

Dod

[invest21c]

Pension Wise (of gov.uk) and its now Money Helper website offers a tool including for enhanced annuities.

Requires very detailed diagnostics of cancer (on medical scales).

Using data in Consultant diagnosis letter, this provided 4 quotes on £100K

3 at about £10K and 1 at £25K p.a.

The 25K quote is from a leading UK annuity provider.

If it looks too good to be true, it probably is and all that.

However that I am exploring further.

My logic is a simple income up to £50K at base rate tax, more than meets my current outgoings and leaves some over as care needs grow.

So it is playing Russian Roulette (if the £25K quote proved to be available - which cynically I somehow doubt)....... will I live for 4 years or more???

I am on a new targeted cancer therapy through Royal Marsden, for which at present there is limited data... though results are encouraging from 1 year to 5 or 8 years and beyond. We just don't know.

Worst case scenario, £100K goes down the pan, (unlikely). Maybe £75K or £50K or £25K or get to 4 years at which point turns into positive.

If it were bought outside of the pension, then it would as I understand reduce the estate for purposes of IHT, leaving pension in tact to go to beneficiaries at their marginal tax rate?


To those of us absolutely anti annuities (as have I been all the way till diagnosis), please do feel free to comment on alternative option.

What I like is that it provides an immediate income and gets me out of all the (fiddly trading/management of portfolio, which until about 2 years ago was fun, now is a drag.... not least due market volatility).

Yes £25K (25% on £100K) does sound too good to be true (at £10K taxable, I do not see enhanced annuity option as attractive)

Also I spoke to an IFA today who reminded me of treated of pensions post age 75, outside of estate for IHT purposes, direct to 2 sons, leave in situ in tact (no, unfortunately neither of my sons is an accountant).

Onwards.
B.

Many thanks to all the posters. It is helpful. Please keep comments coming and let us see where this leads me. At least I am 'talking' about the necessary financial and legal steps now. That is progress. I spoke to an IFA today, first time in years and not quite as challenging as it could be.... and learnt a bit more with each conversation.

[invest21c]

I'm sorry for your predicament. My view is not all financial here.

In your shoes, my first consideration would be a bucket list - what would I like to do in next 12/24/60 months. Be generous with yourself. Take the kids and their families on a great holiday; get that dress; stay in swanky hotels etc.

In your shoes, I would not be looking at an enhanced annuity, given you have sons whom (I presume) you wish to leave any surplus to.

To be hard-nosed about it, if you have Stage 4 cancer, you would be an outlier if you lived another 10 years.

You have £12500 in state pension. I'm assuming a huge amount here, but I assume £50K p.a. would be fine to live on.

Why not take £50K per annum to complement this for the next five years.

If you need to pay for a care home, selling your existing home will likely more than cover any fees.

One thing to consider is to enjoy life now while your health is relatively good. It may not always be like this.

If I were the OP I would plug in some figures into a site on the internet. There are a number of sites but I found My Pension Expert (about which I know nothing). Plug in your numbers (basically your age and the amount you have or want to commit to an annuity.) That will give a number for a standard life at the OP's age. Then ring them up and explain the health situation. They will probably want a lot of detail because the best rate can only be derived from the full health situation.

She could probably improve on that but annuity rates vary all the time and especially at the moment where the trend in interest rates is not exactly stable. That number though will give her something to think about. Of course the capital is more or less gone but there are a lot of different sorts of annuities and some I think involve a guarantee of a minimum number of years of benefit and so on. This is a very specialist area though and it is vital to get advice from someone who is a specialist and up to date with what is available.

Annuities are a bit of a gamble with the capital but it is like buying anything. If you buy a new car the money is gone but you have a nice shiny new vehicle. With annuities your capital is gone but instead of the new car which can sit on your drive, you are getting a financial guarantee of an annual payment for life with no effort on the part of the purchaser, and as has been said, only a modest part of the annual payment is subject to income tax so in some circumstances they can be a valuable arrangement. With relatively high interest rates at the moment annuity rates have suddenly improved dramatically. They can of course be index linked and coupled with various guarantees but that will affect the immediate benefit that she will receive.

Hope some of that may help.

Dod

Yes exactly and thank you Dod....

..... and just so that this isn't all 'doom and despondency'..... with 'a scandalous waster of money' as my ex would say, I went out last week and bought another (nearly new) BMW 218iMSport convertible........ much to the delight of my sons I am pleased to say........ it gives a message out that Mum is fine at the moment, so life is for living......... (now what else was on that bucket list?..... fortunately very little so focus on making house comfortable...) It is hard to break habits of a lifetime of financial prudence.... but it's fun trying!

[Laughton]

I went out last week and bought another (nearly new) BMW 218iMSport convertible

Made me smile.

You haven't said whether either of your sons have or are likely to have children. That could make a difference to your thoughts on passing down your SIPPS.