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Pensions glossary

Annuity

An annuity is a contract between an investor and an insurance company. In simple terms the customer buys a contract and in return receives a regular income, generally for life.

Annuities can be fixed - guaranteeing a set payment - or variable. Variable annuities do not guarantee a payment but have the potential for greater returns.

Annuities are generally what a pension fund is converted to when people stop contributing to it.

Typically annuities pay out based on age, expected life expectancy of the person buying, and current prevailing interest rates.


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