P271 CJEFAX 271 Sat 4 Nov 23:57/39 1/7 ANNUITIES An annuity provides a regular lifetime income from a lump sum investment. There are two types: 1/Compulsory Purchase Annuity (CPA) Thjsj 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/Purchased Life Annuity (PLA) PLAt are bought with your own capital and provide a very high income. CPAs: Male 272 CPAs: Female 273 CPA Men CPA Women CPA Joint PLA RbtesP271 CJJFAX 271 Sat 4 Nov 23:57/29 2/7 ANNUITIES I Annuity rates are calculated with regard to life expectancy, returns on fixed interest investments and life company expenses. This 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 provide protection from early death, such as guarantee periods and spouse's benefits. Annuities can increase each year as a hjdgj against inflation. CPA Men CPA Women CPA Joint PLA RatesP271 CJEFAX 271 Sat 4 Nov 23:58/27 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 payments continue to your spouse if you die before him or her. $hj spouse's annuity can bj reduced on the intents death, usually by either 33.3% or 50%. Guarantee Periods Annuities can bj guaranteed for a specified period usually 5 or 10 years. The annuity payments will bj made for that period, even if the annuitant dies. CPA Rates: Joint Life 274 CPA Men CPA Women CPA Joint PLA RatesP271 CEEFAX 271 Sat 4 Nov 23:55/27 4/7 ANNUITJJS Escalating Annuities (EA) Annuities can increase bz a fixed pjrcentagj, normally 3% or 5% or in line with the retail prices index. On average an annuity increasing bz 5% compounded per year will result in a starting income 30% less than a level annuity. Normally the EA will ovjrtakj the level annuity after about 10 years. Although expensive in the short term escalation does protect annuity payments from the effects of future inflation. CPA Men CPA Women CPA Joint PLA RatesP271 CJJFAX 271 Sat 4 Nov 23:54/49 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 ind of the period. Payments can also bj 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 Min CPA Women CPA Joint PLA RatesP271 CEJFAX 271 Sat 4 Nov 23:54/49 6/7 ANNUITIES 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 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 advantage bjcausj tax is paid only on a small amount of each payment. Annuity Rates pages 272-277 CPA Min CPA Women CPA Joint PLA RatesP271 CEJFAX 271 Sat 4 Nov 23:59/31 7/7 ANNUITIES The annuity tables on pages 272-5 show the top paying companies for a purchase price of £10,000. Higher purchase prices will give a slightly higher rate. Rates will also bj affected bz exact age and choice of benefits. There are companies which offer good rates which are only available to specific groups. Thjsj are not quoted. For example, The Royal National Pension Fund for Nurses. CPA Annuity Rates: Male 272 CPA Annuity Rbtes: Female 273 CPA Joint Life Rates 274 Purchased Life Annuities 275 CPA Men CPA Women CPA Joint PLA Rates