With Profits Annuity

A with profits annuity is a lifetime annuity and it combines the payment of an income for life with the potential for growth, as well as providing some ongoing protection from inflation.

Advantages of a with profits annuity

Anticipated bonus rate

The availability of an anticipated bonus rate (ABR) gives you more flexibility over your level of annuity payments than you would have with a conventional annuity or an inflation proof annuity. (The lower the ABR, the greater the potential for higher increases in the future).

Income guarantee

A with profits annuity comes with a guarantee that your income will never fall below a certain minimum level over the longer term, the potential for growth could keep your income ahead of inflation (depending on fund performance, inflation and the ABR chosen).

Options

You can choose to switch to a conventional annuity at anniversary dates (some restrictions apply to protected rights benefits).

Disadvantages

A varying income

Although your income has the potential to increase it could also go down or even fall below the amount you started with. This does not apply to protected rights benefits which cannot fall below the starting level. See protected rights annuity.

Past performance is not a guide to future performance. Increases to income are not guaranteed.

How it works in more detail

Investment

A with profits annuity invests your pension savings in the with profits fund of a life insurance company, then pays out an income based on the bonuses declared each year. The income paid represents your share of the profits of the underlying fund. Bonus additions will depend, principally, on the investment performance of the with profits fund, changes in how long planholders are expected to live and expenses incurred. The rate of future bonuses cannot be guaranteed.

Starting income

You can select your starting income using an anticipated bonus rate (ABR) within a certain range. A larger ABR will provide a higher level of initial income, however it will also provide smaller annual increases and the risk that your income could go down will be higher.

Protected rights

For the protected rights fund a 0% ABR must initially be selected. To obtain a desired income it may be possible to achieve this by selecting a higher ABR with money from non-protected rights.

Important footnote

While offering the opportunity for growth the income from a with profits annuity isn’t guaranteed – it can go up or down. The protected rights benefits cannot, however, fall below the starting level.

For a similar product, but with greater risk, take a look at a unit linked annuity.