Annuities

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Annuities

 

a form of state loan by which the creditor periodically receives a certain income (rente), established on the basis of a gradual liquidation of the capital sum and interest on the debt. There are fixed-term and life annuities. In the case of the former, the payment of income is limited in time (usually the period is quite long) and may be transferred to another individual. In the case of lifetime annuities, income may be received only by the immediate creditor, and the payment of rente ceases with the death of the holder. The price of annuities derives from the market level of loan interest rates. The size of the annual payment on lifetime annuities is determined in accordance with the age of the creditor and statistical data on the mortality of the population. In Britain and France annuities were issued in the early 19th century in order to speed up the liquidation of termless loans, the latter being exchanged for fixed-term or lifetime loans. In non-European countries annuities spread in the 17th and 18th centuries: in the USA they were issued during the consolidation of the state debt, which arose during the War for Independence (1775–83).