P271 CEEFAX 271 Fri 13 May 21:10/44 1/7 aNNUITIES ££££££ £3 £ £ £ 3k An annuity provides a regular lifetimY income fr m a n5mp sum investment. There are two types 1WCompulsory Purchase annuity (aP—) -hjsj are bought from pension funds Normally pension plans 1llou you to buy a better annuity from another lif compan . This i known as h Open Market Option. 2/Purchased Life Annuity (PLA) PLAt are bought with your own capital and provide a veru high income. CPA3: Male 272 CPAs: Female 273 CPA Men CPA Women CPA Joint PLA RaterP271 CEEFAX 271 Fri 13 May 21:28/23 ] 2/7 aNNUITIES O R Annuity rater are calaulated {iud 0 regard to life expectancy, returns on fixed interest investments and life company expjn3ju. $hi means that rat increase whuh age, and rise or fall depending on the return on the current yields from medium dated gilt3. 2 As an annuity is for life, there are a number of options that provide protection from earlX death, such as guarantee periods and spouse's benefits. 2 Annuities can increase each year as a h dg a ainst i fl t on. CPA Men CPA Women CP— Joint PLA RatesP271 CEJFAX 271 Fri 13 May 21:11/34 ] G IT ES I Single or Joint Life Ann5itieu A 3ingle life annuity ceases on the death of the annuitant, but you can choo3e to ha6j thu ann5itX 8a9mjnt1 continue to your spouse if you die before him or her. $hj spouse' annuity can bj r duced on the intents death, usually bz either 33.3% or 50%. 2 Guarantee Pdriods Annuities can bj guaranteed r 1 specified period usually 5 or 10 years. The annuity pazmunts will be made for that period, vjn if th annuitant dies. j CPA Rates: Joint Life 274 CPA Min CPA Won n CPA Joint PL RateP271 CEEFAX 271 Fri 13 May 21:05/28 4/7 aNOUITIES 2 Escalating nnuities (Ec) E Annuities can inc ear b fix d percentage, normally 3% or 5% or in line with the retail rice ind9x. On 1vjrage an ann i increasing 9 5% compoundj per year will give a starting income 30 est than a lun l ann i . Normblly th EA w ll 6 stag h2 level ann it after about 10 years. Although expjn3ivI in th short term escalation does prntect ann it a m ts r m h ff t of future inflation. CP Men CPA Women CPA Joint PLa RttesP271 CEEFAX 271 Fri 13 May 21:12/24 5/7 |.% ANNUITIES Frequency of Payment Most annuities are quoted monthly. By convention CPAs are quoted in advance and PLAt in arrears. Advance: Payment is made at the beginning of the period. Arrears: At the end of the period. 22 22 22 2 22 222 0 Pa:mints can also bj made annually, half yearly or quarterly. Annually in arrears will give thu highest pa:mint, but, quarterly in arrears is the most common alternative to monthly paymknts. CP M n CPA Won n CP— Joint PLA R tP271 CJEFAX 271 Fri 13 May 21:15/46 F aNNUITIES I Taxation 0 Compulsory Purchase Annuities ar taxed as earned income and are usually paid net of basic rate tax. Purchased Life Annuities. Each pa m nt includ a r pa m nt as part of the original capital, known as the capital content. $his is deducted from the gross annuity before applying your ta| rate. Thus PLAt have a significant ta| advantage because tax is paid only on a small amount of each pa mint. CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 13 May 21:11/41 G aNNUITIES O The annuity tables on pages 272-5 show the top paying companies wot a purchase price of £10,X00. Higher purchase prices wiml gi6e a slightly higher rate. Rates will also bj affected by exact age and choice of benefits. $hjrj are companies which offer good rates but are only available to specific groups. The3j 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 CP— Joint PLA Rate1