About Annuities
With profit annuities combine the advantages of an income for life with the advantages of investing in a with profit fund which is linked to the stockmarket.
With profit annuitants share in the future investment gains (or loses)
of the fund and so their annuity income may grow (or fall) in future years
depending on bonuses. This is in contrast to traditional (non-profit) annuities
where the income is guaranteed but there is no investment growth.
With Profits
|
|
A long term investment
|
|
Income from a with profit annuity is not guaranteed but policyholders
will benefit from any future profits, or share in any of the losses
in the with profit fund.
With profit annuities have the normal annuity, e.g. single or joint
life and choice of guaranteed periods and payment frequencies.
The important difference is that instead of being invested in fixed
interest, they are invested in a with profit fund thereby providing
the opportunity for future income growth
|
|
Annuities are a long term investment. The life expectancy of a man
aged 60 is 24 years. Over this period a WPA might provide a higher
income than a standard (non-profit) annuity.
Not only are people living longer, but they have higher financial
commitments in retirement.
With returns on traditional annuities falling to historically low
levels, more people are looking to with profits annuities because
of the potential to boost their future income.
|
The advantages of with profit annuities
- Combines the advantages of an income for life with the advantages of
investing in the stockmarket
- With profit funds smooth investment returns, ironing out investment
peaks and troughs
- In certain circumstances they are a good alternative to pension drawdown
- They provide the potential of a growing income, with the security peace
and mind associated with annuities
The disadvantages of with profit annuities
- Future annuity payments will fall if bonuses are lower than expected
- Increases in future life expectancy can be passed on to the policyholder through reductions in future bonuses
Risk Warnings
- The income from With Profits Annuities is not guaranteed and may fall as well as rise. This means that they are more risky than standard annuities
- past performance is no guide to the future
Suitable for |
|
Those who can accept the higher risk of with
profit annuities. They should have substantial assets and not be totally
reliant on the annuity to maintain their standard of living. |
| |
|
|
| |
|
In certain circumstances a with profit annuity may be suitable
for very small pension funds, e.g. AVC's, providing there are other
secure pensions and other sources of income. |
| |
|
|
Advantages |
|
If the declared bonuses are higher than the anticipated
bonus the annuity income will rise. |
| |
|
|
| |
|
For younger annuitants, or those with younger spouses, a
with profit annuity may provide a better way of hedging against the
effects of future inflation. |
| |
|
|
Disadvantages |
|
The income from a with profit annuity may fall
as well as rise. |
| |
|
|
A brief history of With Profit Annuities
Investment-linked annuities are not a new concept. Allied Dunbar, M & G, Commercial Union and Provident Mutual have offered the option of a unit-linked annuity to their existing policyholders for quite some time. However it was not until 1987, when Equitable launched their unit-linked and with profit annuities, that investment-linked annuities became available on the open market. In 1991 Prudential launched its with profit annuity, and in 1995 Scottish Widows launched their range of unitised annuities.