Answered by Tom Conner
Like a conventional annuity, index-linked annuities are designed to provide you with a regular income in retirement.
However, index-linked annuities ensure that your income increases each year in line with inflation, so that your spending power keeps pace with the cost of living.
You income is usually linked to the Retail Prices Index (RPI), one of the government’s measures of inflation.
Drawback of index linked annuity
One of the drawbacks of going for an index-linked annuity is that initially your income is usually much lower than it would have been if you’d gone for a level or fixed annuity.
If inflation remains low, then it could take some time for an index-linked annuity to pay the same or more income as a standard annuity, although later on your payments should end up higher than the payments you’d get from a level annuity.
Always seek professional financial advice if you aren’t certain which annuity to go for. We are here to help and can provide this advice if needed.
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