Conventional Annuities

Annuity contracts are still the most appropriate contract for many individuals entering into retirement. The income you receive is guaranteed for at least the rest of your life and the income can be paid on a level or escalating basis.

The income you receive is linked to government gilts and your life expectancy as perceived by the annuity provider.  Life expectancy is increasing which is excellent news; however, it will have an effect on your annuity return.  It is also important therefore that those retiring now do not underestimate how long their annuity income will have to last.

Did you know that government estimates for the UK show that life expectancy for people age 65 in 2005 will be:

• Around 84 for men; and
• Around 87 for women

Source: Government Actuary’s Department – cohort figures 2005.

When looking at conventional annuities the issue regarding the effects of inflation must be considered and over time, inflation will erode the true purchasing power of your income.  That being said you must also take into account the initial reduction in your income if you opted for an escalating annuity