Investment linked annuities, also known as with profits annuities, differ from conventional annuities in that your pension fund is put into investments, such as stocks and shares, to provide the opportunity for potential growth. There are two types of investment linked annuities:
- With profits annuities, where your money is invested into the annuity provider's with profits fund.
- Unit linked annuities, where you choose the types of fund for your money to be invested and your income is directly linked to the value of these investments.
Please note: we only provide quotations on with profits annuities. If you are interested in unit linked annuities, we recommend that you contact an Independent Financial Adviser.
With profits annuities
The amount of income you receive each year depends on the performance of the provider's with profits fund for each 12 month period and are then adjusted each policy anniversary to take into account the actual declared bonuses. This means that the annuity amount can go up or down depending of the performance of the fund.
Investment Linked annuities, tend to have higher charges than conventional or enhanced annuities. Any charges, including administration and investment costs, are taken into account when setting the annuity rate and before calculating your starting income. Details of these charges are shown on your full quotation.
Legal & General With Profits Annuity
We will provide you with quotations based on an Anticipated Bonus Rate or 'ABR' of 0%, 3% and the maximum of 5%. This means that you are anticipating bonuses that will be allocated over the following year at a rate of 0%, 3% or 5% and these incomes are guaranteed for the first year.
If the actual bonus declared is less than anticipated, your income for the following year will reduce. If the fund performs well and the actual bonus exceeds the ABR, your income, the following year, will increase.
It is standard practice that in the good years, some of the investment returns are held back and are used to boost bonus rates in the years when investment returns have not been so good. Therefore, 'Smoothing' any potential fluctuations in your income.
Any Protected Rights funds cannot be included and will be quoted as a conventional annuity.
Guaranteed Minimum Level
The guaranteed minimum level of income is calculated as a percentage of the starting annuity. Your annuity will never fall below this.
0% ABR 2.1 - 3.0% ABR 4.1 - 5.0% ABR
= 100% of starting income = 50% of starting income = 30% of starting income
Prudential Income Choice Annuity
The quotation we have given you is based on the maximum income allowable and is based on a Required Smoothed Rate or 'RSR' of 6%. This means that the declared bonuses for the following year need to be at a level of at least 6% to maintain your level of income.
If the actual bonus is less than 6%, your income for the following year will reduce. If the fund performs well and the actual bonus exceeds 6%, plus charges, your income for the following year will increase.
You can choose the amount of income from the specified range and the RSR changes to reflect this income. You can change your income from a specified range at any policy anniversary, but you are only allowed one change every 2 years. Any Protected Rights are quoted on the minimum RSR of 1%, the 'secure level'. This can be increased after the 2nd policy anniversary.
The 'Secure Level' is your guaranteed income amount. At the start of your annuity, the 'Secure Level' is the minimum income available (see quote). It then goes up by half of any increases in income. If there are no increases, or income reduces, the Secure Level stays the same. e.g. annuity goes up by £50, secure level goes up by £25.
- Opportunity for steady growth
- Possible safeguard against the effects of inflation, without the low starting rate associated with escalating annuities.
- Can be converted to a conventional annuity with the same provider on any policy anniversary after the first policy anniversary. A charge is made for this change.
- Payments are guaranteed for the first 12 months
- The ABR or income level can be changed on the policy anniversary, with restrictions varying by provider. You will be charged making this change.
- The rate of future bonuses or smoothed returns cannot be guaranteed.
- Poor investment performance may lead to reduced income, but never below the minimum income guarantee or secure level.
- Annual changes in income may make it difficult to budget.
- Past performance is no guarantee of future performance.
- The higher the chosen ABR or income level, the higher the risk that your income will fall