Annuity

The payment of a regular income by a life company to an annuitant either for life or shorter periods in exchange for a lump sum.Annuities are typically used for pensions and the individual receiving the annuity is known as an annuitant. In the UK they can broadly be classified into two types:- A compulsory purchase annuity, which is bought from the proceeds of a pension fund and is taxable as earned income.- A purchased life annuity, which is bought with an individual's own capital and taxed at a lower rate than a compulsory purchase annuity.There are three different types of pension annuities, commonly referred to as standard annuities, with-profits annuities and unit-linked annuities.Standard pension annuities are the most commonly purchased and account for over ninety per cent of the UK market. The income from a standard pension annuity is guaranteed for the rest of the annuitant's life whereas the income from a with-profits or unit-linked annuity will fluctuate depending on the investment performance of the underlying assets.