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
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's
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's 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