How it works
Investment linked annuities tie your pension income to the performance of one or more investments. If the investments perform well your annuity income could grow considerably. Likewise, if they don’t you could see a significant decrease.
If you do see a positive performance you can enjoy a significantly increased retirement income. You may decide to invest some of your pension fund into an investment-linked annuity and secure a guaranteed income with a less volatile option.
What’s the catch?
Investments are unpredictable. Only consider this route if you're confident you could support yourself in the event of your income falling. Most investment-linked annuities offer protection with a minimum income limit. This is a limit on how low your income can fall.
The main downsides to an investment-linked annuity are:
- Less stability than a level annuity
- Risk of income being reduced if investments fail to perform
- Unsuitable for people with a smaller pension pot
Because of the financial risks involved we’d always recommend you seek independent financial advice before pursuing this option.