with profits annuities

Annuity types > with-profits annuities

The basic principle of With-profits type annuities is that the income you receive from your invested fund is smoothed, so that instead of experiencing wide fluctuations that you would with the Unit-linked annuity, your income stream is more constant.

You are required to pick a bonus rate (Anticipated Bonus Rate (ABR)), which usually ranges from 5% down to 0%. The greater the ABR selected, the more income you receive, though you need to bear in mind that if you select a high ABR (and consequently a high income) and the investments of your fund do not perform adequately, then your income will be lower in the subsequent year to reflect the shortfalls. Note – if you select a zero ABR, then you will only receive the income from the actual return that your investments have made in that term.

The investments within your with-profits annuity are selected and managed by the insurance company’s fund manager. Several insurance companies will allow you to convert your fund to a conventional annuity.

The advantage of the With-profits annuity is that it allows you to participate in the investment arena, whilst giving a smooth income stream. It could be a good option if you don’t wish to get locked into a Conventional annuity at a low rate of income, although you have to be aware of the risk element of participating in investments.

This type of annuity has the potential to protect your standard of living against inflation. However, there is a limited downside risk.