Index linked annuity

Helen’s story – 66 years old

Helen has carefully built up her pension pot over the years and is looking to retire soon. She’s looking for an annuity option that will help protect her income from inflation so she can hopefully keep up with the cost of living.

Helen’s full story

When Helen retires she will have a pension pot of around £50,000.

She lives comfortably with her partner, but wants to keep her independence, she’s worried about what inflation will do to her pension income over the longer term as her family has a history of living longer than average.

When she retires, she’ll take her 25% tax-free lump sum of roughly £12,500 and is considering putting the rest into an index linked annuity. A level annuity would give her a flat monthly payment of £157, whereas an index linked annuity would start lower at £87, but will vary with inflation. So if inflation rises by 4% year on year for the next 10 years she could be getting around £129 a month at that time.

In this example, an index linked annuity or a level annuity could deliver good value for those who live longer in retirement than the norm.

In addition, the index linked annuity could work well in conjunction with the State Pension, which also rises with inflation, to further protect Helen from increases in the cost of living in the future.

Please click here to read the assumptions we’ve made.

The annuity income is based on the current annuity rates of the top 3 annuity providers in the United Kingdom as at January 2022. The annuity rates used are those for the retirement age in the case study. The annuity rates you might get at the chosen age are likely to differ significantly.

Scroll down to see Helen’s figures

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