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inflation proof annuity
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Although a
Conventional Annuity with fixed increases offers some protection from the effects of inflation, this is the only annuity that allows you to
fully protect the buying power of your income. Your income (before tax) will always keep its real value throughout your retirement removing the effects of inflation.
Advantages
Similar to the advantages of a Conventional Annuity.
It provides an income for the rest of your life - protects the buying power of your income.
Your income tracks the Retail Prices Index (RPI), so the real buying power of your annuity (before tax) stays the same.
Disadvantages
You'll start off on a lower income than you would with a Conventional Annuity paying a level income, as the amount will be based on our expectation of what inflation might be over your expected lifetime.
If inflation falls below zero your income will go down, unless you take out a guarantee against negative inflation at the start.
You're locked in at today's interest rates for the rest of your life (annuity rates go up and down with interest rates, although this could be an advantage when annuity rates are high).
How it works in more detail
We are now tending to live for longer during retirement, so even low levels of inflation could significantly reduce your income in real terms over the period. By providing annual changes in line with the
Retail Price Index (RPI), or equivalent index chosen by the Government, this annuity option ensures your income will keep its buying power.
The guarantee against negative inflation has a cost and choosing this option will reduce the starting level of income.
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