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Glossary
Annuitant - the person/s on whose life the policy is arranged.
Escalating Annuity - the income increases in line with a fixed rate per annum compound.
Frequency of Payments - the annuity payments can be made monthly, quarterly, semi-annually or annually. The income can
be paid either in advance or in arrears.
Guaranteed Payment Period - the annuity guarantees to pay the income for a period of time, irrespective of whether the
annuitant has died or not. The guaranteed payment periods are up to 10 years. If the individual dies most insurance companies
try to pay a lump sum to reduce the administration burden for the executors of the estate.
RPI Linked - the annuity will increase in line with the retail price index throughout the term of the annuitant. Some of
the RPI linked annuities will rise and fall with inflation, while most will only rise. (i.e. when inflation falls, the insurance
company will maintain the income payments).
Level Annuity - the annuity remains level throughout the life/lives of the annuitants. The main disadvantage of this
form of annuity is inflation, which can erode the value of the income, as witnessed in the 1970's.
Overlapping - when the first life dies, the full annuity is paid until the guaranteed payment period finishes. If there
is no overlapping the annuity will fall to the lower level, which is on the second life.
Proportion - proportion allows for the partial payment of the income, if the annuitant dies half way through the period.
For example if the annuity is paid annually in arrears, and the annuitant dies half way through the period, the deceased estate
would receive half the income payment.
Widows/Widower's Benefit - the annuity will continue after the death of the first life, until the death of the
second life. The benefits could be escalating throughout. There could be a reduction after the death of the first life, of between
0% and 100%. The most common reductions are 1/3rd, 50% and 2/3rds. The figures shown above assume a reduction of 1/3rd, i.e. a
2/3rds payment to the surviving spouse.
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Risk Warning: The past is not necessarily a guide to future performance. The value of your investment and the income
from it can fall as well as rise and is not guaranteed. You may not get back the full amount invested.
Our views are based upon our understanding of current legislation. Levels and bases of, and reliefs from, taxation are
subject to change and their value to you will depend upon your personal circumstances. You should not act on any of the information
without seeking professional advice.
clarity is authorised and regulated by the Financial Services Authority. The Financial Services Authority does not regulate
all types of Pensions, Mortgages of Taxation Advice.
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