About Annuities
Annuity Growth Account
The Annuity Growth Account is a new type of annuity which uses a 5 year temporary annuity to provide a guaranteed income whilst part of the pension remains invested until the temporary annuity runs out.
Temporary Annuity
Part of the AGA is invested in a 5 year temporary annuity. This is an
annuity which only pays out for 5 years after which it stops
Temporary annuities cost less than lifetime annuities because the payout period is shorter.
The amount invested in the temporary annuity depends on age and the level of income required
Pension Fund
The balance of the pension remains invested in a personal pension.
There is a wide range of funds in which to invest and they enjoy the normal tax advantages
At the end of the 5 year period the pension fund should have increased in value and part will be used to buy another temporary annuity.
Survivor Bonuses
It is important to understand that the AGA is an annuity - an exchange of capital for income - and so on death there is no lump sum death benefit
On death the balance of the fund which is not used to provide death benefits (see below), goes towards the mortality cross subsidy for other annuitants
However to compensate for exchanging capital for income, the AGA pays a special
survivor bonuses at the end of each 5 year period. This is a very transparent
way of passing on the benefits of mortality cross subsidy
Death Benefits
The AGA can payout death benefits in two ways
Temporary Annuity
- If a 5 year guarantee period has been selected, and you die within
5 years, the annuity will continue in full until the end of the guarantee
period
Pension Fund
You can choose to have a partner's pension of 50%, 2/3rds or 100%. On
your death, and at the end of the temporary annuity, your partner will
be able to use the selected proportion of the fund (50% 2/3rds or 100%)
to either
- Buy a single life annuity
- Buy a further 5 year temporary annuity and invest the balance
