[1] Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.
[3] Medieval German and Dutch cities and monasteries raised money by the sale of life annuities, and it was recognized that pricing them was difficult.
[5] These concerns got the attention of several prominent mathematicians[6] over the years, such as Huygens, Bernoulli, de Moivre and others:[5] even Gauss and Laplace had an interest in matters pertaining to this instrument.
[7] It seems that Johan de Witt was the first writer to compute the value of a life annuity as the sum of expected discounted future payments, while Halley used the first mortality table drawn from experience for that calculation.
Meanwhile, the Paris Hôtel-Dieu offered some fairly priced annuities that roughly fit the Deparcieux table discounted at 5%.
[8] Continuing practice is an everyday occurrence with well-known theory founded on robust mathematics, as witnessed by the hundreds of millions worldwide who receive regular remuneration via pension or the like.
Defined benefit pension plans are a form of life annuity typically provided by employers or governments (such as Social Security in the United States).
With the complex selection of options available, consumers can find it difficult to decide rationally on the right type of annuity product for their circumstances.
Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made.
A process of medical underwriting is involved and the range of qualifying conditions has increased substantially in recent years.
In the United Kingdom conversion of pension income into an annuity was compulsory by the age of 75 until new legislation was introduced by the coalition government in April 2011.
The monthly payments from annuities with tax-sheltered funds are fully taxable when withdrawn as neither the capital or return thereon has been taxed in any way.
Conversely income from annuities purchased with savings funds is divided between the return of capital and interest earned, with only the latter being taxable.
[15] This growing market will drive improvements necessitating more research and development of instruments and increase insight into the mechanics involved on the part of the buying public.
An example of increased scrutiny and discussion is that related to privatization of part of the U.S. Social Security Trust Fund.
In late 2010, discussions related to cutting Federal taxes raised anew the following concern: how much would an annuity cost a retiree if he or she had to replace his or her Social Security income?
[16] In March 2011 a European Court of Justice ruling was made that prevents annuity providers from setting different premiums for men and women.