Inflation Linked Annuity
Inflation linked annuities, which are similar to escalating annuities, help to negate the affect of inflation on your annuity income. An inflation linked annuity is linked to an index such as the retail price index (RPI) which means that the income you receive in retirement rises or falls in line with the affect that inflation has on that index. As you are locking yourself into an indexed annuity the initial income you will receive is likely to be less that the equivalent standard annuity would pay out.
The advantages of an Inflation linked annuity are that they counter the affect that inflation would have on a level or fixed income annuity, however periods of low inflation or even deflation (where you would experience a reduction in your retirement income) may be becoming more common. This means that due to the lower starting income reaching the breakeven point where an inflation proofed annuity would be more favourable than a fixed income may come a lot later or is some cases never.
So in choosing to go down the inflation linked annuity route will be reliant on a number of unknown variables including the future level of inflation and your life expectancy.
As with all decisions at retirement it pays to get expert annuity advice. Contact us for more information about inflation linked annuities, make sure that you maximise your income in retirement.