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Product matters

The open annuity could become a familiar phrase in the coming months but

it may well be talked about more than used. Aimed at those with

£250,000-plus, it seems to be closer to a drawdown contract than a

traditional annuity.

It will offer transparent (but, potentially high) charges, investment

choice (akin to, but not as wide as Sipps), some income flexibility and a

new method of providing a return on death.

It will operate as an investment account, from which income can be drawn.

Out goes the mainstay of other annuities: the mortality cross-subsidy. In

comes the “protected cell” – the mechanism to provide a return on death.

A flat fee of £1,000, which must be paid from non-pension fund

assets, will pay for the protected cell. In return, it provides the value

of the remaining investment pot as a lump sum payment to the annuitant&#39s

estate on death. The value of the protected cell is non-assignable and

cannot be placed in trust. So it will form part of the deceased&#39s estate

for inheritance tax.

Depending on circumstances, it is probable therefore that a tax charge of

40 per cent will apply – less generous than the 35 per cent charge on


Who is going to be interested? Although Open Annuities has itself been

happy to field enquiries, it has yet to publish detailed information so it

is too soon to draw conclusions. However, it will clearly be of interest to

those avoiding traditional annuity purchase at 75. With this in mind, it is

odd that the product should be called an annuity at all.

David Marlow is head of marketing at The Bureaux


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