The Assumed Annuity Interest Rate preference is used as the default annuity interest rate, which is used to convert an accumulated pension fund into an annuity or to calculate payments when purchasing any future annuity.
This default setting can be overridden for any individual Defined Contribution/ARF/Immediate Deferred Annuity by adjusting the relevant values on the individual assets.
+ button > Pensions > Immediate/Deferred Annuity
Assumed Interest Rate
For Defined Contribution Plans go to + button > Pensions > Defined Contribution screen > Annuitisation
Assumed Interest Rate
ARF Plans can also be scheduled to be annuitised on the + button > Pensions > ARF > Annuitisation
Assumed Interest Rate
Options for calculating future annuity income
When annuitising there are two ways that the software can calculate future income from the funds; Either by specifying what the annuity rate will be or by allowing the software to derive an annuity rate based on the clients age.
Option 1 - Specify the annuity rate
Where one has a reasonable idea of the applicable market (annuity) rate, taking account of the clients age and circumstances etc, you can choose the option to 'Specify the Annuity Rate'.
If this is 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 with a conversion 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 Annuity Rate' and it is for this 'assumed interest rate' that you have entered your figure of X%.
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).
We do not pretend to know what rate of interest would, in fact, give rise to a realistic annuity rate in today's marketplace. Secondly, the primary reason that the software defaults to using the 'Assumed Interest rate' in the first place, is because this option does take into account an individuals gender and 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 this instance, it is probably the 'Specify the Annuity Rate' option that your looking for since you have a specific rate in mind. If you decide to use the 'Assumed Interest Rate' option, we generally recommend that you make allowances for provider costs/charges and provider mortality assumptions. Therefore it generally makes sense to understate the expected yield.
Pensions > Immediate Deferred Annuity > Future Non Pension Annuities screen can also be used to schedule the purchase of FUTURE Non Pension Annuities. Under 'Status' select 'Future' this will schedule the future purchase on the timing screen.