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Dec 30, 2010

Most people opting to get Guaranteed income from Annuities


Category: General
Posted by: admin

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This article is regarding the U.K. (England & Scotland) market.  Even though the content is for the U.K., people around the world are the same with their goals, view points, desires and what they want in life, financial security.

Experts in the pension industry said that plans to change the pension rules in order to give investors more freedom over how they spend their savings for retirement might be equivalent to an enormous tax cut for the rich.

The Treasury recently announced that it would end a law requiring pensioners to buy an annuity for when they reach the age of 75. Annuities are financial products that are sold by insurance companies. When purchased, they promise a steady source of income until death.

Since pensioners will no longer be required to buy an annuity with their pension, they will be able to invest the money elsewhere. The new rule only applies to those with a pension offering more than 20,000 pounds a year. This prevents people from spending away their pension and relying on the state pension.

Few people will be able to take advantage of this change in the laws. About 1% of people who are in their retirement age, or 50,000 citizens, will have this option. Currently, savings that are not annuitized are taxed 82%, while they will now be taxed between 20% and 55%.

Experts say that the change is regressive and will not benefit the vast majority of people who have a pension will not be able to opt out of annuity schemes if they choose to do so. This amounts to a massive tax cut for the wealthy that is funded by increased taxes on the less fortunate.

The people who will be most likely to take advantage of the change in laws will be pensioners who already have a very large guaranteed pension income. In some circumstances, the additional flexibility will allow people to make investments that could prove very lucrative, but only if they have resources far beyond their needs. It might allow for additional tax planning, but only if you are very wealthy.

Several experts say that most people will still take annuities, because of the fact that they offer guaranteed income.