Types of annuities
Annuities come in many different shapes and sizes but they fall into basic
groups - Pension Annuities and Purchased Life Annuities
Pension Annuities
Also called "Open Market Option Annuities" or "Compulsory Purchase Annuities"
All money purchase pension schemes provide the option to purchase a lifetime annuity at retirement. Before April 2006 there was a big difference between annuities purchased
form compnany schemes and those purchased from personal pensions. This difference
has now disappeared.
There are a number of types of pension annuities including:
- Standard annuities - also called non-profit annuities
- Enhanced annuities - higher income for those in poor health
- With profit - future income linked to WP bonuses
- Flexible annuities - income flexibility and investment control
Purchased Life Annuities
A Purchased Life Annuity (PLA) is very similar to a pension annuity, except
that you invest your own money. Part of each payment is deemed to be repayment
of your original capital and so that part of the payment is tax free. Therefore
you only pay tax on a small amount of each payment.
- Lifetime PLAs - have most of the same options e.g. single or joint, guarantee periods and levels of escalation
- Temporary annuities - are only payable for a fixed term e.g. 5 or 10 years