Is a with profits annuity right for you?
Legal & General believes that with profits annuities will become more interesting to advisers as an option to conventional annuities, especially with improvements in longevity, for those customers who are prepared to accept an element of risk. A with profits annuity offers customers the opportunity of security, in the form of a guaranteed minimum level of income, and also provides the opportunity for income growth. So as longevity improves, the investment potential offered by a with profits annuity may help to counter the impact of inflation on pension income over the longer years of retirement.
Tim Gosden, head of annuity product development for Legal & General’s individual annuities business said; “People do not appreciate how long they are likely to live in retirement. They may have to rely on their pension for 20 years or more. This is a long time to live on a fixed level of income provided by a conventional annuity for example, particularly given the likely impact of economic changes over that period. Exposed to the ravages of inflation, a customer’s pension income could soon become insufficient to cover increases in the cost of living. Even during a period of low investment returns, the income from a with profits annuity would still not fall below the minimum guaranteed level set at the outset.”
With profits annuities may appear more complicated than conventional annuities but the underlying concept is straight forward.