Unit Linked Annuities

Unit linked annuities are similar to ‘with profits’ annuities and suit those who need financial security but do not want to rule out potential returns on certain types of investments. The main difference is in the way your pension fund is invested – in unit-linked funds of the investor’s choice.

The policy’s value is measured by the value of units allocated to it which depends on the investments’ performances. Your initial payout and future payments received depend on the underlying unit-linked performances. Investors are often allowed to assume a future growth rate. The higher this rate the greater your initial income, but if the actual growth does not match this rate then the amount of pension payable falls.

Here are some useful facts:

• Tax-free cash – most pension plans have the option of taking a tax-free lump sum, before exchanging the residual fund for a series of payments.
• Ongoing income – Annuity payments are taxed (PAYE) at source. These will increase or decrease depending on fund performance relative to the assumed growth rate.
• Death benefits – decisions concerning death benefits are made at the outset. The options are designed to provide for a spouse/civil partner/dependent’s pension. These choices include:
  • Funding a spouse/civil partner/dependents pension for up to 100% of what you received.
  • You can guarantee that for a period of ten years after you die your estate still receives your remaining payments.
  • You can opt for capital protection which means that if you die before the age of 75 your payments minus the gross you already received can be paid out, but they will be taxed at 35%.

Advantages include:

• An income for life.
• You can elect for your spouse to receive an income for their life upon your death.
• Access tax-free cash at the outset.
• No additional charges applied to the contract – all are taken at the outset and reflected in the annuity rate offered.
• Higher annuity rates than a traditional annuity could be available.
• Simple contract and minimal paperwork needed to start the payment of benefits.

As this does not guarantee your income level and is subject to future investment returns, it is vital to receive professional, qualified advice if considering a unit-linked annuity. All death benefit options, which can reduce your initial payment, must be selected at the outset and cannot be altered later.

Robert Bruce Associates provide specialist, helpful and clear advice on annuities, so you can make an informed, fact-based choice. If you have any questions or if you would like to arrange a discussion call 0845 600 6080 or email info@rbaifa.co.uk.