Is immediate vesting a good thing to do with annuity? I read this about a guy who saw an offer for an “immediate vesting pension” paying what was termed a “secure income” of about 9% in return for him giving up his capital. Question is; is this a better bet for him than locking into a fixed-rate savings bond paying just above 4%, and where his investment would be returned at maturity?

He is 72-year-old with a pension of £300 a month and savings of around £200,000. By his reckoning, he would need to live to nearly 85 before the pension annuity offered a better overall deal than the savings bond. He has unfortunately recently been in hospital and treated for a life-threatening medical condition. If he chooses to go down the immediate-vesting route, would he be eligible for enhanced annuity rates?

An immediate-vesting pension can be a pretty good idea for some investors who are happy to forgo their capital in exchange for a guaranteed ongoing income for the rest of their lives. These schemes are basically pensions where investors take their benefits immediately, and where contributions can benefit from tax relief of up to 40%. Annuity rates can be as high as 11% for individuals aged about 75, and for someone considered to be in good health such high returns can represent a good deal.

However, he would need to live quite a few years before such an arrangement would outperform a  savings bond, and there is the added risk of the pension effectively being lost if he dies before he has got value from his capital. With the bond, his original investment would not be lost at death, but would go into his estate.

There are annuity providers who might be prepared to offer an enhanced rate in light of his recent medical problem. If there was a chance that the condition might have some bearing on his life expectancy then it might be best not to buy a plan with standard rates. That said, assuming he has  no earned income in the current tax year, he will be limited to making an investment into this of just £3,600 gross. At this low level, only one provider, Standard Life, currently offers immediate-vesting pension annuity quotes and it does not offer enhanced terms.