EG – Let us assume that Stewart’s target net income is still £10,000 net of basic rate tax and the best annuity rate available to him is still 5.8%. The calculation would now be carried out as follows:

• There are no segments to calculate an income from, so instead we establish the income provided per £100 of fund. We do this as follows:
• £100 of fund provides £25 of PCLS; plus,
• a gross income of £75 × 5.8% = £4.35 gross income.

Our target income is net of basic rate tax so we deduct 20% from the gross annuity income to arrive at a net income figure of £4.35 × 80% = £3.48

This gives us a net income of £25 + £3.48 = £28.48 for every £100 of fund, or, put another way, gives us an ‘annuity rate’ of 28.48%.

• We then divide Stewart’s net target income figure of £10,000 by this ‘annuity rate’ (i.e.
• £10,000/0.2848) to give a fund of £35,112.36.
• This is the amount of fund that must be crystallised to provide Stewart with his target income.
• To prove this we take the crystallised fund of £35,112.36:
• £35,112.36 × 25% = £8,778.09 PCLS; plus,
• £35,112.36 × 75% × 5.8% = £1,527.38 gross income which will become £1,527.38 × 80% =
• £1,221.91 net.
• This gives a total net income of £8,778.09 + £1,221.91 = £10,000.