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These offer the chance of a higher income in the future, but at the
expense of taking extra risk.
These plans link to real assets such as fixed interest and equities, but
you need to be comfortable with linking your income in retirement to the
volatility of the stockmarket. They are therefore more risky than
conventional annuities.
These link your income directly to the performance of the insurance
company's with-profits fund. Typically, your income is made up of two
parts:
1. a minimum starting income - this is usually set at a low level but,
unless investment conditions are very bad, you will usually get at least
this much income. Some with-profits annuities guarantee it.
2.
bonuses - The insurance company usually announces bonuses each year.
Bonuses can be 'reversionary' (usually announce once a year and
guaranteed to pay out for the duration of your annuity) and 'special' -
these only pay out a year or so until the next bonus announcement. The
amount of any bonus depends on many factors, the most important of which
is stockmarket performance. Some insurance company's may guarantee a
bonus rate, for example 3% a year. Sometimes you can choose the
guaranteed rate, but the higher the guarantee, the lower your starting
income.
There are few companies offering with profits annuities now and their
popularity has diminished following the introduction of
Unsecured
Pension.
Your income in retirement will be linked directly to the value of an
underlying fund of investments. Generally, you can choose the types of
fund, for example:
-
a
medium risk managed fund where the fund manager selects a broad range of
different shares and other investments - spreading your money widely
reduces risk;
-
a
higher risk fund where a fund manager selects shares and other
investments in a particular country - Japan, say - or sector, such as
smaller companies or technology companies. Because your money is less
widely spread, the risk is higher;
-
a
tracker fund (usually medium risk) which tracks the performance of a
particular stockmarket index like the FTSE-100 (top 100 UK companies by
market value). Usually, these have lower charges than managed funds.
Again, these have diminished in popularity since the introduction of
Unsecured Pension
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