A big, big, question at the moment: will deflation have an impact on annuity incomes for those individuals who chose to buy index linked annuities? Might their income fall after the retail price index (RPI) fell below zero for the first time since 1960, nearly 50 years ago?
Certain annuity providers such as Prudential, Standard Life, Partnership and Just Retirement say that some people will be hit by the RPI deflation, which now stands at a lowly -0.4 per cent, although less than 10% of annuities are inflation-linked and only a small proportion do not have a floor option which means there are only a few that will be affected by deflation.
Leading annuity provider, LV=, has stated it will not be cutting annuity income on its RPI-linked annuities and Axa has also stated that deflation will not affect its customers. On the other hand, Standard Life has 6,000 retirees with an RPI-linked pension annuity without a floor and Prudential has 9,000 clients in the same position.
Standard Life’s head of pensions policy John Lawson stated that it would not be treating customers fairly to introduce a floor to these annuities for customers who have not actually paid for it. Interesting point of view.
So, if you are considering protecting your income by looking at annuity quotes to find the best inflation linked annuity rates, beware. Read the small print!
