Annuities

What are annuities?  by Challenger

An annuity is a simple, secure financial product that guarantees a series of payments in return for an upfront investment. The capital can be returned at the end of the agreed term or gradually during the term of the annuity.

The rate of return is fixed at the outset, regardless of share market movements or interest rate fluctuations. Annuities provide the comfort of knowing you will receive a pre-agreed, guaranteed income stream for a specific period of time.

Annuities can only be issued by life insurance companies. In Australia they are strictly regulated by the Australian Prudential Regulation Authority (APRA).

Benefits of annuities
The beauty of annuities is that everything is 'locked in' at the start of the investment. You know what to expect every month or every year for the life of your investment. Other benefits include:

Security - your interest and capital payments can be guaranteed, regardless of how the share market and how other investment markets perform.

No product fees - there are no management or account keeping fees. The rate of return and the amount of income to be paid each period are agreed upfront and there are no fees to be taken out of these amounts.

Flexibility - you can choose the term of the annuity, the frequency in which you receive payments or whether you receive your capital back in a lump sum at the end or over the course of the annuity.

Ability to remove inflation risk - you can also elect to index your payments so they move in line with inflation (CPI) or fixed indexation.

Tax effectiveness - if bought with superannuation monies, and if minimum payment requirements are met, income from annuities will be tax free for investors over the age of 60.

Lifetime income - in the case of a lifetime annuity you can enjoy a guaranteed regular income for your lifetime.

Attractive rate of return - annuities offer highly competitive earning rates compared to many other fixed income investments.

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