Cookie Use

Drewberry™ uses cookies to offer you the best experience online. By continuing to use our website you agree to the use of cookies. If you would like to know more about cookies and how to manage them please view our privacycookie policy.

What is an Escalating Annuity?

I’ve been looking into buying an annuity and an escalating annuity comes up time and time again. I was just wondering what an escalating annuity is and whether it’s the same as an index-linked annuity?

Question asked by Mr S Shah

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, whether you have any medical conditions and of course the size of your pension pot.

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 almost doubled 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.

I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.

Brendan Kelly
26/09/2019
Compare Top 10 Annuity Rates
Takes approx. 60 seconds
  • £

Or call us on 0208 432 7333

Compare Financial Advice Logos
Contact Us
Head Office & Pensions and Investments
Millennium Bridge House
2 Lambeth Hill
London
EC4V 4GG
Personal Insurance & Accounts Payable
Telecom House
125-135 Preston Road
Brighton
BN1 6AF
Drewberry London Office MapDrewberry Brighton Office Map
Our Core Principles
  • 1You Come FirstWe are a client focused business who always aim to put you first.
  • 2We are ExpertsTo provide you with the best advice, we need to know our stuff!
  • 3We are HumanWe are real people with feelings who are here to help you.
  • 4We are ProfessionalProviding a 5-star service requires a professional approach to everything we do.
  • 5We are here to EducateWe don't believe in sales, we are here to educate so you can make informed decisions.