An annuity can be a valuable option for investing your pension fund with an insurance company. With an annuity, you can receive a reliable and low-risk income stream for the remainder of your life, regardless of how long that may be.
To determine your annuity payments, the insurance company considers various factors, including your age, lifestyle, health, and location. This allows them to provide a payment that's tailored to your individual circumstances.
Interestingly, the ability to provide an income for life is made possible by a practice called cross-subsidy, which means that those who pass away before receiving full repayment of their capital help subsidise those who live longer and withdraw more than their annuity purchase price.
Annuities are primarily invested in low-risk government bonds (GILTs) and other high-grade bonds. These types of investments are generally perceived to be lower risk when compared to stocks and shares. However, while they offer relatively lower risk, their yield can still be affected by market forces. It's important to note that varying market conditions can have an impact on the yields, and in turn, the income payable from immediate annuities.
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