With Profit Annuities link your income directly to the performance of the insurance company’s With Profit Fund. Typically, the income is made up of two parts:
- A minimum starting income
- Bonuses – the amount of any bonus depends on many factors, the most important of which is Stock Market performance. Some insurance companies may guarantee a bonus rate.
For many people conventional Annuities from existing providers do not offer a satisfactory income stream. At the other end of the risk scale, pure Equity retirement options are too risky, and With Profit Annuities are often deemed to provide a satisfactory middle ground. With Profit Annuities can provide a higher regular income today, with the opportunity for an increasing income in the future, and should be considered if the Annuitant wants the Pension Annuities to retain exposure to future Equity gains without significant volatility.
The income from a With Profit Annuity results from the bonuses added each year and these are based on the underlying investments of the With Profit Fund. Although this means that there is an element of risk, over time the Equity portion of a With Profit Fund does outperform Gilts and Fixed Interest and this means that there is a significant potential for receiving more income from With Profits than a conventional Guaranteed Annuity.
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