With Profits Pension Annuity – A valuable alternative!
With Profits Annuity combines the payment of an income for life with the potential for growth as well as some protection from inflation.
How a with profits annuity works:
- Your fund will be invested in the insurance companies With Profits fund.
- You are asked to set the Assumed Bonus Rate/Bonus Anticipation Rate (ABR/BAR) level for a With Profits Pension Annuity. Effectively, you are being asked what bonus do you expect to be declared from the With Profit fund at the end of the year. The normal parameters are between 0% and 5%.
- When setting your ABR the company will pay you this bonus in advance, throughout the course of the first year. If at the end of the year the bonus rate declared is the same as your assumption, then for the 2nd year your income will be broadly the same.
- If the bonus rate declared at the end of the year is lower, then the company need to recover the additional amount they have paid out and will reduce your 2nd years income. The opposite is that if the bonus is higher than expected then your 2nd years income will increase.
- The higher your ABR, the higher your first year's income. Conversely, the lower the ABR, the lower the initial income. However, the lower ABR creates a bigger potential for increases in future years. For example, on a bonus anticipation rate (BAR) of 5% it would give you a high annuity now.
- Your income will be linked to the performance and subsequent bonuses declared by the With Profit fund.
You may choose to have a Single Life or a Joint Life annuity - Joint life will provide your partner or spouse the income should you die before them.
Guaranteed period is also one of the options - you can select the annuity to be paid to you and/or your spouse for 5 years or 10 years - irrelevant of what happens to you.