P271 CEJFAX 271 Fri 6 May 21:17/18 G ANNUI I=S An annuity provides a Megular lifetim income from a l mp m investment. There are two types: 1&Compulsory Purcha j Annuity (CP—) ThIOj are bought rom pension eunds Normblly p nsion plans allow you to bu£ a b£tter annuity f£om ano£h£r likk c mpa8z. The+ i2 2nown as th Open Market Option. 2/Purcha 3d Life Annuit (PLA) PLAt are bought with your own Napstal and providH a vjrC high incom CPAs: Male 272 CP,,: Female 273 jP271 CEEFAX 271 Fri 6 May 21:20/38 2/7 ANNUITYES Annuity rates are calculated whth regard to life expectancy, returns on fixed interest in6eutments and life company expenses. $his means that rates increase with age, and rise or fall djpjndink on the return on the current yields from medium dated gilts. As an annuity is for life, there are a number of options that provrdj protection from early death, such as guarantee periods and spouse's benefits. Annuities can increase each =ear as a hedge against inflation. CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 6 May 21:10/56 3/7 ANNjITIES I Single or Joint Life Ann5itie3 A single life annuity ceases on the death of the annuitant, but you can choose to have the annuity payments continue to your spou3j if you die before him or her. $hj spouse's annuity can bj reduced on the intents death, usually bz either 33.3% or 50%. Guarantee Periods Annuities can bj guaranteed for a specified period usually 5 or 10 years. The annuity payments will 2j made for that pitied, e6jn if the annuitant dies. CPA Rbtes: Joint Life 274 CPA Mdn CPA Women CPA Joint PLA Ratj1P271 CEJFAX 271 Fri 6 May 21:15/39 4/7 aVNUITIES Escalating Annuities (EA) Annuities can increase by a fixed p rcenta e, normall 3% 5% in line with the retail prices index. On average an annuity increa3ink bz 5% compounded per year will give a starting income 30% less than a level annuity. Normally the EA will o6jutakj the level annuity after about 10 years. Although expensive in the short term escalation does protect annuity pazmknts from the effects of future inflation. CPA Men CPA Women CPA Joint PLA RatesP271 CEJFAX 271 Fri 61May 21:01/54 5/7 n2n1 .% V T S Frequency of Payment Most annuities are quoted monthly. By convention CP—s arr quoted in advbnce and PLAt in arrears. Advance: Payment iu made at the beginning of the period. 2 b Arr ats: At the nd of th period. 2 Pa:mints can also bj made annually, half yearly or quarterly. Annually in arrears will give thu highest pa9mjnt, but, q5arteuly in arrears is the mo1t common alternative to monthly payments. CP M n CP Women CP Joint PL Rat sP271 CEEFAX 271 Fri 6 May 21:12/40 6/7 ANNUITIES O Tbxation Compulsory Purchase Annuities are taxed as earned income and are usually paid net of basic rate tax. Purchased Life Annuities. Each payment includes a repayment as pbrt of the original capital, known as the capital content. This is deducted from the gross annuity bjforj appl9ing your tax rate. $hus PLAt have a significant tax advantage because tax is paid only on a small amount of each pa9mjnt. CPA Men CPA Women CP— Joint PLA RatesP271 CJJFAX 271 Fri 6 May 21:24/14 G ANNUITIES The annuity tables on 8agjs 272-5 show the top paying companies for a purchase price of £10,000. Higher purchase prices will give 1 slightly highj5 rate. Rates will also bj affected by exact age and choice of benefits. Thjuj are companies which offer good rates but are only available to specific groups. These are not quoted, eg, The Royal National Pension Fund for Nurses. CPA Annuity Rates: Male 272 CPA Annuity Rates: Female 273 CPA Joint Life Rates 274 Purchased Life Annuities 275 CPA Men CPA Women CPA Joint PLA Rates