You could opt for a with profits annuity as a prudent retirement option. These annuities combine the payment of an income for life, as well as potential for growth. There can also be some protection against inflation. Nowadays, Protected Rights funds can also be used to purchase a with profits annuity, although some restrictions do apply.
Having an Anticipated Bonus Rate (ABR) gives you flexibility over your level of annuity income which isn’t there with a conventional annuity or an inflation proof annuity. The lower the ABR selected, the greater the likelihood of higher increases in the future.
These annuities come with a guarantee that your income will never fall under a certain minimum level over the longer term, and the potential for growth could actually keep your income ahead of inflation. Natuarally, this depends on fund performance, inflation and the ABR you choose. This can be read in association with any annuity quotes you get.
You have the ability to switch to a conventional annuity at anniversary dates, though again some restrictions will apply to Protected Rights benefits. When you are considering this it is important to compare annuity rates, especially if you have ill health.
Accepting that your annuity income has the potential to increase over time it could also go down or even fall below the level you started with. This does not apply to any Protected Rights benefits which cannot fall below the starting level, and, again, naturally, past performance is not a guide to future performance and increases to income are not guaranteed. This is a worthwhile retirement option but the terms and conditions need to be understood.
The With Profits Annuity invests your pension monies in a with profits fund of a life insurance company, and it then pays out an annuity income based on the bonuses declared each year through that fund. The income paid represents your share of the overall profits of the underlying fund. Bonus additions will depend, generally, on the investment performance of the fund, changes in how long planholders are expected to live in retirement, and expenses incurred. The rate of any future bonuses cannot be guaranteed.
You can select your particular starting income using an ABR within a certain range. A larger ABR will provide you with a higher level of initial income, however it will also provide you with smaller annual increases with the added risk that your income is more likely to go down in time.
For the protected rights element a 0% ABR must be selected at the outset. To obtain your desired income it might be possible to achieve this by choosing a higher ABR with money from non-protected rights.
While offering the opportunity for future growth the income from a With Profits Annuity isn’t guaranteed, and it can go up or down. The protected rights benefits, if under this contract, cannot fall below the starting level.
