The choice of hybrid annuities is growing all the time. They offer a number of choices combining investment-linked living annuities (living annuity, or illa) with one of the underlying choices being a guaranteed annuity and a with-profit smoothed or stable guaranteed annuity.
The most favoured combination of a hybrid pension is a with-profit annuity to provide the guaranteed income that should be sustainable for as long as you live. The main difference relates to how future increases on your pension are determined.
With a normal guaranteed annuity, you get as a pension what a life company offers you with future increases specified as either a fixed % increase or as a % of the change in the official inflation rates.
The main features of a with-profit annuity are:
Your income is guaranteed for life. This includes your starting income and every annual increase, relating to investment returns.
Annual increases are linked to the smoothed returns of a balanced fund investment portfolio (usually 60-70% invested in equities, with returns smoothed over 5 to 6 years). There may be positive or negative adjustments, usually small, if longevity or credit risk experience is different to the best estimate basis used by the...