Let’s consider the benefits of a with profits annuity over a conventional annuity. With a conventional annuity you get a secure guaranteed level of income payable throughout your retirement. With a with profits annuity you can combine the advantages of an income for life with the potential advantages of investing in a fund that itself invests in a range of fixed interest, property and shares. Income from a with-profits annuity can vary and is not guaranteed, but policyholders will benefit from any future profits in the fund, or share in any of the losses in the fund. This means that your annuity income may fall as well as rise, so they are only suitable for people who can afford to take some form of risk. With-profits annuities have the usual annuity options, namely single or joint life, with the choice of guaranteed periods and annuity payment frequencies.
A with profits annuity combines the advantages of an income for life with the potential advantages of investing in the stockmarket. The with-profit funds smooth ongoing investment returns, ironing out peaks and troughs, and they provide the potential of a growing income, with the security and peace of mind normally associated with annuities. Looking at the longer term, with-profits annuities should actually help to hedge against inflation. Mind, there are disadvantages; first, future annuity payments will fall if accrued bonuses are lower than expected. Increases in future life expectancy can be also passed on to the planholder through reductions in future bonuses. And, with-profits annuities are more complex arrangements, but provide investors with the potential for income growth if they are prepared to accept and run with the additional risks.
