P271 CJEFAX 271 Sun 3 Mar 20:42/04 1/7 ANNUITIES O An annuity provides a regular lifetime income from a lump sum investment. There are two types: 1/Compulsory Purchase Annuity (CPA) These are bought from pension funds Normblly pension plans allow you to buy a better annuity from another life company. This is known as the Open Market Option. 2OPurchasjd Life Annuity (PLA) PLAt are bought with your own capital and provide a very high income. CPAs: Mali 272 CPAs: Female 273 CPA Min CPA Women CPA Joint PLA RbtesP271 CJJFAX 271 Sun 3 Mar 20:45/10 2/7 ANNUITIES O 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 depending on the return on the current yields from medium dated gilts. As an annuity is for life, there are a numbjt 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 Min CPA Women CPA Joint PLA RatesP271 CJJFAX 271 Sun 3 Mar 20:35/40 3/7 ANNUITIES O 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 hit. The 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 pjtiod, even if the annuitant dies. CPA Rates: Joint Life 274 CPA Min CPA Women CPA Joint PLA RatesP271 CJEFAX 271 Sun 3 Mar 20:31/20 4/7 ANNUITIES O Escalating Annuities (EA) Annuities can increase bz a fixed percentage, normblly 3) or 5) or in line with the retail prices index. On average an annuity increasing bz 5) compounded pet year will result in a starting income 30% less than a level annuity. Normally the EA will overtake 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 Min CPA Women CPA Joint PLA RatesP271 CJJFAX 271 Sun 3 Mar 20:44/20 5/7 ANNUITIES O 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. 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 Min CPA Women CPA Joint PLA RatesP271 CJJFAX 271 Sun 3 Mar 20:47/14 6/7 ANNUITIES OO Taxation Compulsory Purchase Annuities are taxed as earned income and are usually paid net of basic rate tax. Purchbsjd 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 Rbtis pages 272-277 CPA Min CPA Women CPA Joint PLA RatesP271 CJEFAX 271 Sun 3 Mar 20:47/00 7/7 ANNUITIES OO 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 Rbtes: Mali 272 CPA Annuity Rbtes: Female 273 CPA Joint Life Rates 274 Purchased Life Annuities 275 CPA Min CPA Women CPA Joint PLA Rbtes