This formula applies where
In this situation, the amount of the annuity payment may change
in an unpredictable way, which, see
IPTM4310, makes actuarial techniques
impractical. So the exempt part of each annuity payment is
calculated as a constant sum.
A fairly common example of this type of annuity is one whose payments are linked to the value of the retail prices index. It is this type of annuity that may give rise to the situation where the exempt sum may in the early stages exceed the annuity payments, see IPTM4310.
In this case,
Exempt sum = PP x 1/TY x PM/12
PP = purchase price of the annuity
TY = expected term of the annuity in years, including odd fractions of a year
PM = the period in months, including odd fractions of a month, in respect of which an annuity payment is made.
The expected term of the annuity is the period from the date the first payment starts to accrue to the date the last payment is expected to be payable. It is determined
If for any reason it is not possible to determine that actuarial
value by reference to the prescribed tables, the value is to be
determined and certified by the Government Actuary.
See IPTM4350 and IPTM4360 on how these calculations are performed in practice.
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