Most people buying an Annuity with their pension fund opt for one which is fixed for life; in other words it does not increase to allow for inflation.  The reason for this is that an Indexed Annuity, i.e. one which includes escalation or RPI linking, costs much more to provide.  This means that, for a given size of pension fund, the starting income is much lower, and it can take many years for an escalating income to catch up with a level one.

Clearly there is a risk in having a fixed income in retirement, as inflation is beyond our control, and if priced were to rise unexpectedly this could have a serious effect on living standards.

It is important to think very carefully about the effects of inflation. Do you think that you could cope with having no increases at all in your annuity income during your retirement that could possibly be 30 years or more?   

The choice between fixed annuities and indexed annuities is an important point which you should discuss with a professional adviser, who will help you to identify the factors to take into consideration.

Call  0845 123 5590  or  01325 487192