With profits annuity

This provides an income linked to the performance of an insurance company With Profits fund. Because this fund invests in all four main asset classes (equities, property, fixed interest, and, cash) over the longer term, the return is expected to be higher than from a conventional annuity. The with profits mechanism should provide some degree of smoothing, protecting your income from the impact of sharp fluctuations in the values of the underlying assets. The financial strength of the office issuing the annuity is a key issue.

Advantages – Over the longer term, if the income increases, it might produce a higher level of income than a conventional annuity. This may be of importance to you, or as a means of providing a growing income for your spouse should you pre-decease them. Many products will now allow you to convert from the with profits annuity to a conventional annuity at some stage in the future, if your circumstances or requirements change (though see section 6 on conversion options and their limitations).

Disadvantages – Your future income payments will not be guaranteed, they may fall as well as rise. There is limited flexibility to change the annuity, once it has been set up.

CHECKLIST: Is a with profits annuity right for you?

	About you and your attitudes	Yes/No
1. Amount of pension fund	More than £100,000 (after tax free cash)
2. Alternative sources of income	Several and/or adequate
3. Value of other liquid assets	At least reasonable
4. Attitude to risk	Low to medium
5. Income growth potential	Growth at cost of some risk of falls

If you answer “No” to either 4 or 5, you should not consider a With Profits annuity. Because of the risk that your income could fall (with nearly all With Profits Annuity providers) it is vital that you either have other sources of income adequate to meet your needs, or sufficient capital or assets that could be used to provide such income if the need arose.

We have appreciated your help and guidance and the way Dennehy Weller operates. The Guides have bee...
[read more]