Investment Linked Annuities

As the name suggests, an investment-linked annuity attaches your annuity income to the performance of investments such as stocks and shares.

This means you still receive a guaranteed regular income, but the actual amount you receive may increase or decrease according to the value of your investments.

How do they work?

Like any other annuity, investment-linked annuities offer a regular income in exchange for your pension pot. However, rather than being given a flat rate, investment-linked annuities depend on the performance of underlying investment funds. If these investments perform well, your income will go up. If they don’t, they could decrease.

What are the benefits?

An investment-linked annuity is a good middle ground between the security of a standard annuity and the potential income-boosting qualities of income drawdown and other investment-based alternatives. If your investments perform well, they can help mitigate the effects of inflation and increase your retirement income. Many investment-linked annuities also have a minimum lower income limit, offering you additional security should your investments fail to perform as well as expected.

What are the potential drawbacks?

Because they rely on the performance of stocks and shares, investment-linked annuities offer less stability than a standard annuity and are tougher to predict. If your investments perform poorly, your income may drop. For this reason they’re not generally suited for people who have smaller pension pots and few other means of generating a retirement income.

How can speaking to an Independent Financial Advisor help?

Some annuity providers invest your funds on your behalf as a matter of course. Others allow you to make your own investment choices. In the latter case, speaking to an IFA would be strongly advisable as they can help you to make informed, intelligent decisions that will hopefully yield good results.

An IFA can also search the whole market for the best investment-linked annuity rates from the UK’s leading providers, and work closely with you to determine whether this is a good option for you or whether alternative retirement choices might offer better value.


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