With Profits Annuity

A with profits annuity does not pay out a guaranteed annuity income like a level or escalating annuity. Your pension fund is invested in a with profits fund and enables you to benefit from any future investment gains.

With profits annuities are attractive when the returns needed to beat a level annuity are fairly undemanding.

The key factor is the assumed bonus rate (ABR). This determines your starting annuity income, and is used when calculating whether your annuity income goes up or down each year.  If the actual bonuses awarded on the with profits fund are higher than the ABR, the annuity payments in the next year will increase. If they are lower, the annuity payments in the next year will decrease.

Most clients aim for an ABR that can provide a similar starting annuity income to a level annuity - this is usually around 4%. This is a relatively easy long term benchmark to beat and makes future growth in income more likely. 

With profit annuities look even better value compared with escalating annuities. Because the staring annuity income on an escalating annuity can be as much as 40% lower than that offered by a level annuity, you can take out a with profits annuity with a 0% ABR that starts with an higher annuity income than an escalating annuity provides. Any bonuses awarded would result in your annuity income increasing.

    

With profit annuities are a popular choice for those clients who are concerned about the adverse effects of future inflation on their annuity income.

As with profits annuities rely on stockmarket performance your annuity income could go down as well as up.

If you or members of your family are considering purchasing an annuity, please feel free to contact us for personal annuity advice from an Independent Financial Adviser. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill,  South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London.

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