A great alternative to a conventional Escalating Annuity
What is a With Profit Annuity? A With profit Annuity is designed to pay you a guaranteed income for the rest of your life, exactly like a conventional annuity. The major difference is that whereas a conventional annuity will pay you a fixed income for the rest of your life, a With Profit Annuity will pay you an annuity that is linked to the performance of the insurance companies With Profit Fund. A With Profit Annuity offers you a more flexible Income, it allows you to choose the starting income you would like, within a specified range. It also allows you to potentially increase your income over time if the With Profit |
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You can take your tax free cash exactly the same as with a conventional annuity, you can also select to have a spouses pension added to the With Profit Annuity, and a guarantee period of either 5 or 10 years.
With a With Profit Annuity you must select an Anticipated Bonus Rate(ABR) at the outset, this will determine your initial income, and will be the return that the with profit fund needs to achieve each year ( after charges) in order that your income does not fall. If the with profit fund achieves a better return than your selected ABR then you will see your income increase in the following year. It is important to select the right ABR and the best way to know what ABR to select is to get advice from us first.
So the only real difference between a conventional annuity and a with profit annuity is your income will be reliant upon the With Profit Investment Funds performance. This means that the product does carry more risk than a conventional annuity, and is therefore not suitable for everyone. If you are 100% reliant upon your annuity income then this probably isn't the right option for you, however if you have other assets to support your income, then a With profit Annuity is an option you might want to consider.
The minimum pension fund that is required to secure a with profit annuity is £50,000 after your tax free cash has been paid. If your fund is below this figure you cannot choose to have a With Profit Annuity, and must select a conventional annuity instead.
Because the With Profit Annuity is a more complicated product, you need to understand the mechanics of how the product works before you go ahead with your decision. It is therefore vital that you seek professional advice from an Independent Financial Adviser who can explain everything to you. We are more than happy to offer this service to you, and we can also arrange for a With profit Annuity quotation to be issued to you. All you need to do is complete the annuity quote form, which can be accessed from the link at the bottom of the page.
Why choose a With Profit Annuity?
A with profit annuity gives you the opportunity to take an initial income that matches what you could get from a conventional non escalating annuity. The difference being that with the with profit annuity you also have the opportunity to increase your income over your retirement years. But how is this achieved?
The best way to highlight how a with profit annuity works in comparison to a conventional annuity is to use an example.
Mr Smith Age 55 retires with a pension fund of £142,383.84 after he has taken his tax free cash. He requires a single life annuity with a 10 year guarantee. He wishes to take a similar income that he could get from the best conventional annuity in the market, with the potential for this income to increase over time. He accepts there is an element of risk with choosing this option, but he has other assets that he can use if his with profit annuity income does happen to fall.
The best conventional annuity income he can get is £8,133 per annum.( before tax)
In order to receive an income of £8,333.40 pa from a with profit annuity he will need to select an anticipated bonus rate of 3.78%. This means that in order for his income to remain the same each year the with profit fund must achieve an annual return of 3.78% after charges.
In the table below you can see what happens to his income if the with profit fund returns an average of 5%, 7% or 9% per annum after an annual management charge of 0.85% has been taken into account.
| 5% A Year | 7% A Year | 9% A Year | |
| Year 1 | £8,333.40 | £8,333.40 | £8,333.40 |
| Year 5 | £8,348.97 | £9,082.56 | £9,863.17 |
| Year 10 | £8,364.57 | £9,899.08 | £11,673.75 |
| Year 15 | £8,380.20 | £10,788.99 | £13,816.71 |
| Year 20 | £8,395.85 | £11,758.91 | £16,353.05 |
| Year 25 | £8,411.54 | £12,816.03 | £19,354.98 |
| Year 30 | £8,427.25 | £13,968.17 | £22,907.98 |
| Year 35 | £8,443.00 | £15,223.90 | £27,113.21 |
| Year 40 | £8,458.77 | £16,592.51 | £32,090.40 |
The above figures are examples only and are not guaranteed. What you would actually get depends on how the investment grows, and on the tax treatment of the investment. You could get back more or less than this.
From the above example you can clearly see that if his With Profit Annuity returns on average 5% per annum, after charges have been taken into account his income would remain fairly constant. However if the fund returns an average of 7% you can see that his income will increase each year. It is therefore important to select the right ABR to make sure that your own income does not fall. A good indicator of what ABR to select can be determined by each annuity providers with profit fund performance over the last 20 years.
Past Performance is not a guide to future performance.
Which Company should you select ?
This is one of the most important reasons for you to get professional advise from us. Each With Profit Annuity Provider in the market has completely different types of with profit fund. You should never select a with profit annuity provider based on the best income offered with the lowest ABR selected. It is our job to explain to you the various different types of fund that companies have, and it is our job to research whose with profit fund has had the best past performance and whose with profit fund will have the best performance going forward. There are various indicators that you need to be aware of when choosing the right with profit annuity provider, such as Financial Strength, Past Performance, Guranteed Bonus rates being offered, with profit asset mix, conventional annuity rates in case you wish to switch to a conventional annuity in the future, and charges. All these factors need to be taken into account before choosing the with profit annuity provider, because once selected you cannot usually change providers.
Past Performance of With Profit Annuities
Each With Profit Annuity provider will have different past performance returns. But to give you an indication of the sorts of returns With Profit Annuities have provided to people in the past, you can click on the link below and it will take you to Prudential's website where you can find the returns in the Bonus Declaration 2005 document. It is important that you understand that these are past performance figures, and that they do not guarantee that future performance will be the same.
www.pruifa.co.uk/content/acrobat/ANNS0028.PDF
By selecting this link above, you will leave the regulated website of Blackstone Moregate Ltd. Neither Blackstone Moregate Ltd nor Sesame Ltd are responsible for the accuracy of the information contained within the linked site.
if you would like to receive advise from us, as to the best retirement options for your own circumstances, please click on the link below and send us your details, and we will make contact with you, and provide advice and a quotation.
