Annuities can be tailored to pay retirement income monthly, quarterly, every six months or even annually. This can then be received either in advance or in arrears i.e. paid at the end of the chosen frequency period.
Click on the diagram to the left for an illustration of how this works.
Some points to consider
- For the vast majority of people their annuity income replaces a regular monthly wage or salary.
- The regular payment can be made either upfront (in advance) or at the end of the chosen payment frequency (in arrears).
- Choosing the frequency of payment will depend on circumstances, how easy budgeting between payments is and the impact it has on retirement income.
- Payments will stop when the annuitant dies unless options to protect their annuity or to guarantee annuity payments were chosen when the annuity was purchased.
Proportion
If the annuitant chooses to be paid in arrears, there is a further option to make a final payment on their death to their beneficiaries.
This is known as 'proportion' and the payment covers the period between the last payment date and the death of the annuitant.
The diagram to the left helps to explain how this feature works.
Some points to consider
- If annuity income is paid less frequently (i.e. yearly) and in arrears, the final payment due on death could be substantial.
- If income is paid monthly and doesn't include proportion, there will be a minimal impact as the most that any final payment would cover is a month's income (if the annuitant were to die on the last day of the month).
Useful LinksGuarantee Period
Overlap