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Julian Gibbs

Canada Life has a new idea which, in effect, enables pensioners to avoid

buying a lifetime annuity until they are 85 rather than the Government&#39s

mandatory age of 75.

At 85, annuities are excellent value for money, especially if you live to

100 or more like the Queen Mother. The £100,000 purchase price will

pay around £22,000 a year for a man or £18,500 for a woman.

This is how it works. If an investor has a pension pot of £100,000,

he or she purchases an annuity with £34,000, which will pay an annual

income of £10,000 for five years. The remaining £66,000 is

invested in a range of Canada Life&#39s funds or the funds of other selected

fund managers including Mercury.

After five years, when the annuity expires, the investor can choose to

take another five-year temporary annuity or purchase a lifetime annuity

arrangement.

Generally speaking, it is probably sensible to opt for the five-year

annuity. If the fund grows by around 7 per cent a year, the £66,000

will have grown to £100,000 by the time of the second annuity

purchase, so, again, £34,000 of this will be used to purchase an

annuity of £10,000 a year, while the balance of £66,000 is left

to grow.

This plan also has great advantages for joint-life annuities in that, on

the first death, the investment portion has a chance to grow and the

surviving spouse can then purchase a lifetime annuity or another five-year

annuity at single-life rates. There are also similar advantages should the

investor&#39s marital status change.

This excellent idea is the ideal compromise between a fixed annuity and

income drawdown.

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