Income Basis

One of the key choices you will make when buying an Annuity is the basis on which your pension income will be paid to you. The most common ways are:
  • Fixed Income - where you get the same payment year after year
  • Increasing Income - where your income increases to offset inflation
  • Investment-linked, - where your income changes in line with investment performance

Fixed income

A fixed income annuity produces the same pension income year after year. It has the advantage of providing a larger income at the start but over time, as the prices of what you buy increase your fixed income will buy you less.

Increasing income

You can protect yourself against inflation by choosing an Increasing Income Annuity where you can choose increasing income based upon:

  • A Fixed-rate – where you choose for your income to rise annually by a fixed percentage, between zero and 8.5%
  • An Index-linked – where your income is adjusted each year in line with inflation.

Investment-linked income

You can also choose an Annuity which will provide you with a pension income that result from investment performance. If your investments perform well, then your pension income is boosted, but if your investments fall in value your income could go down. Some of these annuities put a limit on the amount your income can fall, regardless of how badly the underlying investments perform.

Key Pointers

  • With increasing income, the higher the rate of increase the lower your starting income
  • It takes about 12 years for an increasing income to catch up with the fixed one
  • It takes about 23 years for the total received from an increasing income to be more than the total paid out by the fixed one.

To make sure you make the right choice, we strongly advise that you seek professional advice from a fully qualified and regulated Independent Financial Advisor. To arrange for a no obligations, initial free telephone consultation click here.