With-Profit Annuities

In most ways, a With Profit Annuity is similar to a 'traditional' annuity.

The main difference is the initial pension level, and future income levels, are dependent on the performance of an underlying With Profits investment fund.

A with profits annuity is a lower risk investment linked annuity. It combines the payment of an income for life with the potential for growth, as well as providing some ongoing protection from inflation.

As with a traditional annuity, it is a series of payments made at selected intervals in return for a pension fund. An assumed future bonus rate is decided at outset by the investor. The higher the bonus rate the greater the initial outcome. If your bonus rate does not mirror the bonus rate of the With Profit Fund, your payments may decrease. However a guaranteed minimum payment is normally paid with most With Profit Annuities.

Most pension plans have the option of taking a tax free cash sum before exchanging the fund for a series of payments. However once an annuity has been purchased there is no further entitlement to take the tax free lump sum.

Annuity payments are taxed at source under the PAYE system and amounts may increase or decrease depending on fund performance relative to the bonus rate.

If you want a guaranteed income but with potential to benefit from future investment returns then the With Profit annuity may be suited to you. They suit people with a low to medium attitude to risk. With Profit Annuities are also well suited to people who have a relatively low pension and are heavily reliant on these payments.

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