Things to Know Before Going for With Profits Annuity

With profits annuity is a combined payment of an income for life and lifetime annuity with the potential of growth and providing some ongoing inflation protection.  This kind of investment though could be very risky due to fluctuation which depends on the investment performance.  One’s income is linked to a with profit fund and with a steady performance,  income growth also becomes steady.

Keep in mind that not all providers offer a with profit option and for companies that do, they usually will give their clients several schemes. The with profits annuity has its advantages and drawbacks. know what they are so you would know whether this is the best option for you or not.  Here are some of the advantages:

With a wise investment, you could have a steady income growth; profit is guaranteed and this is something that any investor wants. A with profits annuity will never go down a certain minimum level as the term gets longer. Another good thing about it is that you can have several options that can fit how much money you are able to invest.

While a possibility of a steady income could be considered an advantage, there are also possibilities of varying income. Your income could fall with a poor investment performance and that fluctuating income will be very hard to budget.

Another thing that you should not fail to know are the restriction and possible penalties of with profits annuity.

Your income could possible fall if the bonus rate is lower that what you have anticipated. When you have finally chosen the anticipated bonus rate, it cannot already be changed in most instances. With this, your income will always be based on rate achievements compared with the bonus rate selected.

Before you finally invest your money with a with profits annuity scheme, make sure that you perfectly understand the in and out.

With profits annuities- A Quick Guide

To get over the perceived lack of flexibility and the potential erosion of your income due to inflation, with profits annuities work by investing your lump sum in the with profits fund of your chosen insurance company. By doing this, you bear the investment risk, not the insurance company.

At outset, rather than opting for a level annuity or one which increases each year, you assume a bonus rate. This will be the bonus rate applying to your with profits fund and if the fund achieves the bonus rate that you have assumed, your with profits annuity will remain level. If the bonus rate applied to the with profits fund is higher than that which you have assumed, your annuity for that year will rise and conversely, if the bonus rate falls, then your annuity will also fall for that year, or until bonus rates rise again above the level of bonus rate that you assumed at outset.

So, if you assume a bonus rate of 3%, and that is what is achieved, your annuity remains level. If after three years, the bonus rate increases to 5% (because of favourable equity markets) then your annuity income will rise too.

Thinking of buying a With Profits Annuity? Our Annuity Service provides:-

  • Depending on your pension provider up to 30% More Annuity Income
  • Specialist advice on different types of annuity arrnagement including investment annuities
  • Assessment of your circumstances to find the most suitable type of annuity for you or whether there are any other options more suited to you.
  • Information & Advice on lifestyle annuities – including  smoker annuities and impaired health annuities you may get even more annuity income.
  • Comparing annuity rates to ensure that you maximise your annuity income.
  • Explaining the annuity options available to you.
  • Helping you with the relevant paperwork to ensure that you annuity is processed smoothly.

Call us on 0800 043 0725

Open Market Option

The annuity market is very competitive and rates differ between annuity providers. You can substantially increase your pension income by purchasing your annuity from the company which pays the most income. This is called “exercising the Open Market Option.” It costs nothing to take advantage of this option and new rules introduced recently by the FSA mean that insurance companies must tell you about this option.