P271 CEEFAX 271 Fri 20 May 21:14/09 G aNNUITIES An annuity provides a regular lifetime income from a lump 3um investment. There are two types: 1/Compulsory Purchase annuity (CPA) These are bought from pension funds Normally pension plans allow you to buy a better annuity from another life company. This is known as the Open Market Option. 2/Purcha3ed Life Annuity (PLA) PLAt are bought with your own capital and provide a vjrz high income. CPAs: Male 272 CPAs: Female 273 CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 20 May 21:12/41 5NN5I JET Annuity rates are calculated with regard to lif xp ctancy, r turns on fixed interest invNstmants and life compan xp ns s. This m th t r t in h agT, and res or fall dip nding on the return on the curt nt yields from m£dium dated gilts. 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. Ann ities can increase each ar as a hhdge against inflation. CPA Men CPA Wom3n CPA Jonnt PLA RatP271 CEEFAX 271 Fri 20 May 21:13/23 ] 3/7 aNNUITIES Single or Joint Life Annuities A single life annuity ceases on the death of the annuitant, but you can choose to have the annuity 8ayments continue to your spou3e if you die before him or her. The spouse's annuity can be reduced on the intents death, usually bz either 33.3% or 50%. Guarantee Periods Annuities can be guaranteed for 1 specified period usually 5 or 18 years. The annuity payments will bj made for that period, e6jn if the annuitant dies. CPA Rates: Joint Life 274 CPA Men CPA Women CPA Joint PLA RaterP271 CEEFAX 271 Fri 20 May 21:17/48 ] 4/7 I ANNUITIES Escalating Annuities (EA) Annuities can increase by a fixed percentage, normally 3% or 5% or in line with the retail prices index. On average an annuity increasing b9 5% compounded per year will give a starting income 30% less than a level annuity. 0 Normblly the EA will ovjrtakj the level annuity after about 10 years. Although expensive in the shout term escalation does protect annuity payments from the effects of future inflation. CPA M n CPA Won n CPA Joint PLA RateP271 CEEFAX 271 Fri 20 May 21:10/14 5/7 ANNUITIES I Frequency of Payment Most annuities are quoted monthly. By convention CPAs are quoted in advance and PLAt in arrears. Advbnce: Payment iu made at the beginning of the period. Arrears: At the end of the period. Payments can also be made annually, half yearly or quarterly. Annually in arrears will give the highest payment, but, quarterly in arrears is the most common alternative to monthly payments. CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 20 May 21:10/24 6/7 ANNUITIES Taxation Compulsory Purchase Annuities are taxed as earned income and are usually paid net of basic rate t1|. Purchased Life Annuities. Each payment includes a repayment as part of the original capital, known as the capital content. This is deducted from the gross annuity before applying your tax rate. Thus PLAt have a significant tax advbntage because tax iu paid only on a small amount of each payment. CPA M n CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Fri 20 May 21:21/14 G ANNUITIES The annuity tables on 8ages 272-5 show the top pa ing companie fo a purchase price of £10,000. Higher purchase prices will give a 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. 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