In the section on INA's (page 31) the core reading talks about the policyholder not paying tax on the interest element of the annuity. Do they mean the income element (i.e. the income/capital split mentioned earlier in the chapter) or is there another element of the annuity? Thx in advance.
Yes, the Core Reading on page 31 is referring to the income content which is described more fully on page 7. The capital content is effectively a return of premium over the expected life of the contract. However the actual annuity payment will be greater than this because the insurer will earn interest on the premium (although they will also need to pay expenses). So the income content can be thought of as the interest paid to the policyholder. Apologies for the use of multiple names here, but I hope this explains where they come from. Best wishes Mark
