Annuity

In simple terms a buyer (annuitant) pays over a capital sum in return for a guaranteed income stream payable for life. The level of return on the capital determined by the insurance company is based on age and expected life expectancy and current prevailing interest rates. When someone retires an annuity is often bought by the trustees of the pension fund belonging to the member to provide a pension in retirement. An annuity payment is made up of a return of capital and a return of interest. How good an annuity is as an investment will very much depend on how long the annuitant lives.