Understanding Purchased Life Annuities (PLAs) and their benefits for people with savings

28 Mar 2025

Introduction to PLAs

A Purchased Life Annuity (PLA) is a financial product that provides a guaranteed income in exchange for a lump sum payment. Unlike traditional pension annuities, PLAs offer more favourable tax treatment, making them an attractive option for people with savings looking to secure a guaranteed regular income.

Impact of interest rates on PLAs

Interest rates play a crucial role in determining the income generated from PLAs. When interest rates are high, the income from a PLA is also higher when compared to other investment and savings options, making it an excellent time for savers to lock in these rates. Conversely, when interest rates are low, the income from a PLA decreases. 

Why PLAs can be good for people with savings

  1. Guaranteed Income: PLAs provide a secure source of income, which can be particularly beneficial for retirees or those looking to supplement their income.
  2. Tax Efficiency: The income from a PLA is divided into two parts: a non-taxable return of capital and taxable interest.  Typically, the capital component is larger for annuitants who are older when the PLA is purchased.
  3. Personalisation: PLA's offer various options such as value protection, guaranteed periods and inflation protection. A joint life PLA will provide income to the policyholder/s for as long as either annuitant is alive.

How PLAs work

When your client purchases a PLA, they pay a lump sum to a product provider, in return they'll receive regular income payments at a frequency of their choosing (monthly, quarterly, half yearly or annually). The income is guaranteed for life. Once the PLA is set up and the cancellation period has expired, it cannot be changed or surrendered.

Uses of PLAs

  1. Retirement income: PLAs are commonly used to provide a steady income during retirement.
  2. Inheritance tax planning: Purchasing a PLA can reduce the value of an estate for inheritance tax purposes.
  3. Funding insurance policies: PLAs can be used to fund life insurance policies written in trust, which can then be passed directly to beneficiaries.

Examples of income from a PLA with £100,000 investment

Here are some examples of the annual income a client could receive from a PLA with a £100,000 investment, based on gender-neutral rates and a lifetime term:

  • Age 65: £6,860.04 p.a.
  • Age 70: £7,729.56 p.a.
  • Age 75: £9,049.68 p.a.
  • Age 80: £11,130.60 p.a.

These figures are based on rates as of 11 March 2026 from Aviva.

Conclusion

By understanding how PLAs work and their potential benefits, people with savings can make informed decisions to enhance their financial security.

In the current environment of higher interest rates, now may be an opportune time to consider PLAs as a means of securing a guaranteed income. As always, it's essential to provide advice to determine if a PLA is the right choice for your client’s specific circumstances, locking in higher rates now could provide significant benefits in the long run.

Visit our Immediate Life annuity page  for more information.