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With Profits AnnuityRisks and rewards of a With Profits Annuity

Unlike a traditional annuity where the retiree hands over their pension funds in exchange for a known income for the rest of their life, the Invested annuity comes with a variable level of income. Invested Annuity


This type of annuity will usually give a higher starting income but maintaining that income, will depend on the annual performance of the funds invested.


The starting income chosen will come with a "required fund performance" or ABR (Anticipated Bonus Rate) this is the amount the underlying fund must grow by each year to maintain the starting income and is between 0 and 6%.


Whether the income goes up or down depends on the performance of the fund invested in but will never go below a guaranteed minimum income level.


Increased income is paid to those with poor health when the annuity is purchased. How the income is received from an annuity can be tailored to the individual requirements of the annuitant.


Income options include monthly, quarterly, half yearly and yearly advanced or in arrears, see more on your income options here - Income Options.


How to choose the right options for a With Profits Annuity


Selecting the ABR between 0 and 6%


The ABR (Anticipated Bonus Rate) is the required fund performance to maintain the starting level of income. Where a lower ABR is selected the starting income will also be lower, however the required fund performance will also be lower meaning there would be a higher prospect of future increases to pension income.


Where a high ABR is selected the starting income will be higher but then there is a higher likelihood that the fund might not achieve this higher amount and therefore income could go down.


Protecting loved ones - Death Benefits


Death benefits available on With Profits Annuities are the same as for traditional annuities. Please see Spouse's or dependents pension and Guaranteed Period (Link Here)


How would you like your income paid?


Just Like traditional annuities a selection of income payment periods can be selected. Please see Income Options (link here) One option that is not available on With Profits annuities is escalation.


Comparison between a Traditional annuity and With Profits annuity


Traditional vs Invested Annuity


Invested Annuities Are they right for you?


Invested annuities could be for people who:


  • Are willing to accept fluctuations in income levels.
  • Would like the opportunity to increase income in the future to offer some protection against the effects of inflation.
  • Would like the highest starting income when they are newly retired.
  • Could accept an income level of 50% of the starting income if there was sustained low performance of the fund


Invested annuities are NOT for people who:


alert Want certainty of income even if this means a lower starting income.


alert Want a simple solution to retirement income.


alert Do not have a higher appetite for investment risk.


Summary - With Profits/Invested Annuity


  • May offer the highest starting income.
  • Income will be variable.
  • Income could go up or down.
  • Income will not fall below a Guaranteed Minimum.
  • Health problems taken into account.
  • Range of income and death benefits available.



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How Safe is my Annuity?A look at how safe an Annuity as an investment is

Take advice from a Diploma Qualified Adviser


Aside from buying a house, the purchase of an annuity will most probably be one of the biggest financial transactions someone will make during their lifetime.


However unlike a house an annuity cannot be sold and the decision is final. This is why it is crucial to take professional financial advice so retirees should ensure they ask what relevant qualifications the person selling the annuity has.


When an annuity is purchased from an IFA they make a recommendation which they are accountable for unlike non-advised call centres where the decision to buy rests with the annuitant and therefore there is no recourse in the event of the product being unsuitable.


My Pension Expert is a company of Diploma Qualified Independent Financial Advisors.


Solvency Two


Solvency two is legislation that will come into force in the near future which will ensure that annuity companies have additional reserves to meet their liabilities. Although this legislation is not yet in force annuity companies have started to make provision for this.


Financial Services Compensation scheme


In the worst case scenario of the annuity company collapsing the Financial Services Compensation Scheme FSCS is there as a last level of protection.


The FSCS covers 90% of the value of the investment without any upper limit. The collapse of an annuity would be extremely rare.


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