An immediate annuity can be an important part of a retirement portfolio. It can be an efficient was to generate guaranteed lifetime income.
Pacific Income Provider offers pension-like, guaranteed income for a lifetime, over two lives, or for a specified period of time. Clients can choose to receive the first income payment anytime within the first year, and since the purchase payment is not invested in the market, the income amount will never vary because of market performance.
Pacific Income Provider offers a choice of two options to adjust future income payments to protect against inflation or to plan for a future change in income, such as receiving Social Security benefits.
Pacific Income Provider can provide tax advantages if purchased with after-tax assets (nonqualified). When income payments begin, the tax liability is spread out over time, providing tax-advantaged income. Each income payment is composed of earned interest, which is taxable, and a partial return of the original purchase payment on which taxes have already been paid.
Clients can tailor income payments through one of two optional features. Must be selected at the time of purchase. Only one optional feature may be added to the contract. After the contract is issued, the elections made at the time of purchase cannot be changed.
Future Adjustment Option
A one-time increase or decrease in income payments based on an anticipated event.*
- Increase by up to three times the initial payment or decrease by up to half of the initial income payment.
- Amount and effective date must be selected at issue.
- Not available with joint income options when reduced benefit has been elected.
- May not satisfy requirements for substantially equal periodic payments under Internal Revenue Code Sections 72(t) and 72(q).
*An increasing future adjustment is not available for qualified contracts.
Inflation Protection Option
Annual increase in annuity income payments:
- Increase of 2%, 3%, or 4% annually selected at issue.
This chart illustrates how the Inflation Protection Option with a 3% annual increase compares to level income payments over a 20-year period.
Only one optional feature may be added to a Pacific Income Provider contract. Once the contract is issued, the elections made at the time of purchase cannot be changed.
Access to a Larger Portion of Income Payments
After the first contract year, there are two ways clients can access a larger portion of guaranteed income payments.
Income Payment Acceleration
After reaching age 59½, if clients elect to receive monthly annuity income payments, they may accelerate income payments and receive a lump-sum amount equal to three or six times the normal monthly payment. (For qualified contracts, the entire payment acceleration period must be in the same tax year.)
- Normal income payments will resume in the fourth or seventh month, respectively.
- Available with all annuity income options.
- This feature can be exercised a maximum of two times.
- After using this feature, one normal monthly income payment must be received before using the feature again.
Withdrawals of Guaranteed Income Payments
For nonqualified contracts, a lump-sum withdrawal of up to 100% of the present value of the remaining guaranteed income payments (subject to limitations) may be taken.
- Available with all options except Life Only, Joint Life Only, or Joint and Survivor Life Only.
- Interest-rate adjustment charge will apply.
- Owner(s) must be age 59½ or older at the time of the withdrawal.
- Making a withdrawal will lower or may stop the remaining guaranteed income payments. However, with the exception of the Period Certain option, if the client is still living at the end of the period when guaranteed income payments would have stopped, Pacific Life will resume income payments until death.
Please note, if the Income Payment Acceleration feature is elected, there is a six-month waiting period before a withdrawal can be taken. Likewise if a withdrawal is taken, there is a six-month waiting period before the Income Payment Acceleration feature can be elected.
Premium: Single premium. All cash purchase payments must be submitted with the application. 1035 exchange/transfer requests must be submitted with the application and the funds must be received within 60 days (90 days in NY).
Minimum Purchase Payment: $25,000 (qualified and nonqualified)
Maximum: $1 million; total purchase payments greater than $1 million, Pacific Life home-office approval in advance. (Pacific Life reserves the right to change the minimum and maximum amount.)
Maximum Annuitant/Owner Issue Age: 90
Income can be customized to meet specific retirement planning needs. Pacific Income Provider offers the choice of one of a variety of options. Income payments will differ based on several factors, including age, gender, amount contributed, and the income option selected.
Income payments must begin within one year of purchase. Once the contract is converted to an annuity income stream, the payout options cannot be changed. Amounts will differ based on the payout option and period selected. Usually, the longer the payout period, the lower the periodic payment amount.
Period Certain Option
- Up to 30 years*
Single Life Options
- Life Only
- Life with Period Certain (up to 30 years)*
- Life with Cash Refund
- Life with Installment Refund
Joint Life Options
Income payments can be reduced to 50%, 67%, or 75% of the current income payment upon the death of either annuitant.
- Joint Life Only
- Joint Life with Period Certain (up to 30 years)*
- Joint Life with Cash Refund
- Joint Life with Installment Refund
Joint and Survivor Life Options
Income payments can be reduced to 50%, 67%, or 75% of the current income payment upon the death of the primary annuitant.
- Joint and Survivor Life Only
- Joint and Survivor Life with Period Certain (up to 30 years)*
- Joint and Survivor Life with Cash Refund
- Joint and Survivor Life with Installment Refund
*For qualified contracts, the maximum length of time for the Period Certain options may be less than 30 years, if necessary, to comply with required minimum distribution regulations for annuities.
Before Income Payments Begin
- Return of purchase payments death benefit
After Income Payments Begin
- Selected annuity income option will determine any additional payments made.
Qualified contracts, including traditional IRAs, SEP-IRAs, Roth IRAs, inherited IRAs, and inherited Roth IRAs, are eligible for favorable tax treatment under the Internal Revenue Code (IRC). Certain payout options and certain product features may not comply with various requirements for qualified contracts, which include required minimum distributions and substantially equal periodic payments under IRC Section 72(t). Therefore, certain product features, including the ability to exercise withdrawal features, may not be available or may have additional restrictions. The payment acceleration feature is available but will be considered a modification to the 72(t) program and may subject the series of 72(t) withdrawals to an additional 10% federal tax. In addition, certain payout options may not be available for qualified contracts.
Income from annuity payments received from Pacific Income Provider cannot be aggregated or combined with income from other IRA contracts/assets for purposes of satisfying the required minimum distributions.
Nonqualified contracts may not be subject to the various requirements for qualified contracts, but are still subject to an additional 10% federal tax for annuity payments, withdrawals, and other distributions prior to age 59½. While there are exceptions to this additional federal tax under IRC Section 72(q), certain payment options may not comply. The payment acceleration feature may be considered a modification to the 72(q) program and may subject the series of 72(q) withdrawals, including any prior withdrawals, to an additional 10% federal tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income.