Flexible Annuity Overview
Flexible annuities, as the name suggests, allows you to have flexibility in the amount of income taken from your annuity.
Conventional annuities offer an income for the remainder of your lifetime which is fixed at outset. The annuity company takes on the responsibility of investment risk – irrespective of how they invest your capital and what sort of investment returns are achieved, a conventional annuity income is guaranteed. Conventional annuities can be considered low risk as you know what you are going to receive.
Flexible annuities, however, put the onus for investment risk back on you. They are more suitable for larger funds or where the annuity will NOT form the mainstay of your income in retirement. Flexible annuities come in two main forms:-
Short term annuity – rolling 5 year annuity:
The majority of your fund remains invested but a proportion is used to purchase a temporary annuity with a term of five years. You receive an income for five years from the temporary annuity with the intention that investment returns will grow the remaining investment fund to such a degree that after five years the available fund would provide you with a greater income.
Flexible annuity allows you to take income between set limits with the remaining fund continuing to be invested. A conventional annuity must be purchased by age 90. Again, the intention of this is that the fund available to you when you finally purchase your annuity has grown in value and the annuity income available from it has consequently grown also.
Whereas a conventional annuity is considered low risk, flexible annuities are not. Part of your investment fund remains invested (in stocks, shares, bonds, cash, commercial property, etc) and will be subject to the volatility of the stock market, interest rates, property prices, rental yields, etc, and so it is possible that when you come to purchase your conventional annuity, the value of the fund has fallen and the annuity income has also fallen.
Both these investment options require significant input from an investment specialist on a very regular basis who will be able to construct an appropriately styled investment portfolio that is capable of providing both income now and capital growth in the future.