P271 CJJFAX 271 Fri 8 Apr 21:19/14 G aNNUITIES I An annuity pro6ides a regular lifetime income from a lump sum investment. Thjrj are two types: 1/Compulsory Purchase annuity (CP—) There are bought from pension funds Normally pjn3ion plans allow you to buy a better annuity from ang5hju life company. This is known as thu Open Market Option. 2/Purchased Life Annuity (PLA) PLAt are bought with your own capital and provide a very high income. CPAs: Male 272 CPAs: Female 273 CPA Min CPA Women CPA Joint PLA RatesP271 CJEFAX 271 Fri 8 apr 21:05/40 aNNjITJES Ann5ity rates ar calculatdd wi h regard to lif exp ctancy, rest ns on fixed interest investmknts and life compan xpjnsj . $his means that rate increase with age, and rise or fall depending on the return on th curt nt ields from medium dated gilt£. As an annuity is for life, there are a number of options that provide protection from earl8 death, such as guarantee periods and spouse's benefits. Annuities can increase each ar a3 a hj gj against inflation. CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 8 Apr 21:12/01 3/7 ANNUITIES 2 Single or Joint Life Annuities A single life annuity cease1 on the death of the annuitant, but yo4 can choose to have the annuit8 pa9mjnt3 continue to your spouse if yoz die before him or her. The spouse's annuity can bj reduced on the intents death, usually bz either 33.3% or 50%. 2 0 Guarantee Periods Annuities can bj guaranteed for a specified period usually 5 or 10 years. The annuity pa:mints will bj made for that period, uvjn if the annuitant dies. CPA Rates: Joint Life 274 CPA Min CPA Women CPA Joint PLA Rate1P271 CEEFAX 271 Fri 8 Apr 21:12/29 4/7 ANNUITIES 7£££££££££££££££££££££££££££££££££££££k Escalating Annuities (EA) Annvities can increase b a fixed percentage, normally 3% or 5% or in line with th retail 8rice index. On average an annuity increasing b 5% compounded pj year w ll giv a starting income 30% mess shag 1 level annuity. a Normally th EA will ovjuta j the level annuity after about 10 year . Although expjn3ive in the shout term escalation dohs protect annuity payments from the effects of future inflation. tP271 CJJFA 271 Fri 8 Apr 21:13/0u 5/7 I Frequency of Payment Most annuities are quoted monthly. By convention CPAs are quoted in advbnce and PLAt in arrears. Advbnce: Payment is made at the beginning of the period. Arrears: At the end of the period. Payments can also bj made annuall8, half yearly or quarterly. Annually in arrears will givk thu highest pa:mint, but, quarterly in arrears is the most common alternative to monthly payments. CPA Min CP— Women CP— Jkinv PLa Ratj2P271 CEEFAX 271 Fri 8 Apr 21:17/21 6/7 ANNUITIES Tbxation Compulsory Purchase Annuities are taxed as earned income and are usually paid net of basic rate ta|. Purchased Life Annuities. Each payment includes a repa9mjnt as part of the original capital, known as the capital content. $his is deducted from the gross annuity before appl9ing your tax rate. Thus PLAt have a significant ta| advantage because tax is paid only on a small amount of each payment. CPA Min CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 8 apr 21:24/46 7/7 ANNUITIES The annuity tables on pages 272-5 show the top pa9ing companies for a purchase price of £10,000. Higher purcha3j priaes will gi6j 1 slightly higher rate. Rates will also bj affected by exact age and choice of benefits. There are companies which offer good rates but are only available to specific groups. Thj3e are not quoted, eg, The Royal National Pension Fund for Nurses. CPA Annuity Rates: Mali 272 CPA Annuity Rates: Female 273 CPA Joint Life Rates 274 Purchased Life Annuities 275 CPA Men CPA Women CPA Joint PLA Rates