Answered by Michael Englefield
What is an Indexed Annuity?
You’re right in that an escalating annuity is the same as an indexed annuity or an index-linked annuity.
To go back to basics, an annuity is a regular income you receive after retirement. You buy this income by exchanging your defined contribution pension pot for an annuity when you decide to stop working.
How much income you’ll get from an annuity is based on your annuity rate. This is determined by a number of different factors, including your age, location, smoker status and whether you have any medical conditions.
Something else that will have an impact on your annuity rate is whether or not you opt to index-link your annuity. When you choose an escalating annuity, you’re opting for your pension income to rise over time in line with inflation. This is to prevent a fixed retirement income being eroded over time as prices rise.
Consider that annuities are typically long-term financial products that you may be receiving income from for decades. Then consider how much a pint of milk cost 30 years ago compared with now – it’s increased from 23.9 pence in 1986 to 42.7 pence by 2016.
When you buy an indexed annuity you typically receive a lower initial income, but this is to compensate for the fact that your pension will increase in the future along with inflation.
Frequently Asked Pensions Advice Questions
Impressed with how personable and straight forward the conversations were. Would definitely recommend to others.
Extremely satisfied with the help and advice from Drew, since the beginning him understood what I was looking for and had the patience to help me out with all my questions and doubts. Didn’t try to be pushy or annoying calling me all the time like so many did before. At the end we found the perfect medical policy for me and my daughter that covers everything that we need. I more than recommend them and if in the future I need something else for sure I will contact them again. Giving only 5 stars because I can’t give 6!!!!
Egle was brilliant in guiding us through the options available for relevant life insurance, took care of all the paperwork and presenting suitable options to us and deciphering all the jargon for us. Highly recommended!