• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Guaranteed annuity rate

S

ST6_aspirant

Member
Hi, question is from Q4, April 2011.

Solution states that if the option is taken, risk that return offered by the annuity is less than returns available if invested the money direct.

If the option is taken, then the guarantee is biting, which means yields available are lower than priced for. Then how can it happen that higher return available if money was invested directly?

Thanks.
 
Hi, question is from Q4, April 2011.

Solution states that if the option is taken, risk that return offered by the annuity is less than returns available if invested the money direct.

If the option is taken, then the guarantee is biting, which means yields available are lower than priced for. Then how can it happen that higher return available if money was invested directly?

Thanks.

The solution states that the policyholder runs the risk that the interest rates at maturity could be higher. In this case, he would have been better off buying the annuity directly from the open market because he would have to pay a lower lumpsum for the same annuity amount. However, he would have paid for the guaranteed annuity option through the higher charges. So, is this not a risk for the PH?:)
 
You must log in or register to reply here.
Back
Top