When annuitising, there are two ways that the software can calculate future income from the funds: either specify what the annuity rate will be, yourself, or allow the software to derive an annuity rate based on the owner's age and the assumed interest rate.

**Option 1 - Specify the annuity rate**

Where one has a reasonable idea of the applicable market (annuity) rate, taking account of the client's age and circumstances, etc., one can change the **Annuity Rate Calculation **option to **Specified Annuity Rate**. If chosen, the % entered is the straightforward 'Conversion Rate', i.e. the rate at which a lump sum converts into an annuity, e.g. a fund of £100,000 (after tax free cash) with a specified annuity rate of 5% will produce an annual income of £5,000.

### Option 2 - Allow the software to derive an annuity rate (the software's default)

The software's default option, on the other hand, allows the software to 'derive' an annuity rate by using an **Assumed Interest Rate**.

The **Assumed Interest Rate** on an annuity is the underlying interest rate assumption on which the annuity calculation is based (or would be based, by an actuary). It would ordinarily reflect an assumed yield on mid-dated UK Sovereign debt (Gilt yield).

The Assumed Interest Rate is pulled through from **Plan Settings > Inflation/Growth > Assumed Annuity Interest Rate **but can be over-written if required.

We do not pretend to know what rate of interest would, in fact, give rise to a realistic annuity rate in today's marketplace. The primary reason that the software defaults to using the 'assumed interest rate', in the first place, is because this option does take account of an individual's age at the time the annuity is purchased. It will, therefore, give one a different result (other things being equal) when the client is 55 than it would when the same individual is 75 (for example).

In the event that you decide to use the 'Assumed Interest Rate' option, we generally recommend that you should make allowances for provider costs / charges and provider mortality assumptions. Therefore it generally makes sense to understate the expected yield.

### Where to find these annuitisation settings in Voyant

Annutisation settings are found in three locations in the software, depending on what you plan to annuitise and the type of annuity.

**Money Purchases** - Settings to schedule the future annuitisation of a money purchase are found on the **Pensions > Money Purchase** screen under **Annuitization:**

**Drawdown Pensions** - Settings to schedule the future annuitisation of a drawdown pension are found on the **Pensions > Drawdown Pension** screen screen under **Annuitization:**

**Future Non-Pension Annuities** - The **Pensions **>** Annuity** screen is used to enter current annuities and to schedule the purchase of future non-pension annuities. The future annuitisation of money purchases or drawdown pensions are scheduled separately on those respective screens of the software.

The annuity rate is set on this screen under **Calculation Settings**.

The annuity rate is not used to calculate current annuity payments. If your client is already receiving annuity payments (the pension **Status** is **In Payment** or **Deferred**), payments will be based on the amount entered in the **Payment** field.

**Related topics**

Default Inflation / Growth Rates - Assumed Annuity Interest Rate