Definition

A life annuity makes it possible to transform an existing capital into periodic income called arrears, which will be paid until the death of the beneficiary ( annuitant ). This choice is irreversible, capital invested being permanently lost.

Revenues can be obtained in two ways:

  1. From an already existing contract, for example a multi-asset life insurance contract or a stock savings plan
  2. By making an investment directly on a life annuity contract.

 

The different life annuities

The different life annuities

For a fee

They are those paid in return for the investment of a capital, but also of a property transmitted in succession or donation. They are partially taxable under the IRPP

The allowances depend on the date of entry into service, that is to say, the age reached at the time of the first payment.

Free of charge

In general, those that have no counterpart, that do not come from the transformation of a capital or the sale of a property in life.

immediate

This is an option offered by insurers on annuity contracts. The invested capital will immediately be converted into a life annuity.

Reversible

When the policy is taken out, the insured has the choice:

  • Payment on one “head”. When the annuitant dies, the contract expires
  • Reversible annuity.

Upon the death of the beneficiary , the income will be returned to a beneficiary designated by contract. The reversion rate may be 100% or lower. The reversion option results in a decrease in the life annuity.

Universal pension

Several companies offer lifelong life insurance policies that earn a universal annuity. These contracts make it possible to add a number of options that the traditional life annuity does not allow, such as an additional death benefit or a larger pension amount in case of dependency or guaranteed annuities.

 

Calculation and revaluation of annuities

 

To calculate the duration of the payment and the amount of the life annuity, the insurers use the life tables and start on a hypothesis of performance of the contract equivalent to the technical rate, that is to say on the guaranteed minimum return.

However, most contracts revalue the amount of the annuity each year based on the financial results achieved in the year.

Life tables.

In the past, insurance companies used Table TPRV 93 (Prospective Life Annuity Table 1993). This took into account persons born in 1950 and extrapolated these results for the other generations, based on automatic calculations.

A decree of August 1, 2006, replaced this table of mortality by tables TGF05 for women and TGH05 for men. The latter take into account the increase in life expectancy, thus reducing the amount of annuities distributed until now.

Tax system

tax system

All life annuities are taxable even if the allowances vary according to their legal form.

Taxation of an annuity for a consideration

Taxation under the IRPP is made after a reduction which depends on the age of the annuitant when he receives the first arrears.

Tax table

Age of the creditor dejection Taxable fraction
Under 50 30% 70%
From 50 to 59 years old 50% 50%
From 60 to 69 years 60% 40%
More than 69 years 70% 30%

Taxation of gratuitous annuities

They are taxable in the same way as wages after a reduction of 10%.

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