Level or escalating lifetime annuities?
You can choose whether you want your single or joint-life annuity to be level or escalating. Our comparison tables can help you shop around.
A level annuity pays you the same income year after year for the rest of your life. Level annuities have a higher starting income than escalating annuities but what you can buy with the income from a level annuity falls as prices rise. To protect your income from rising prices, you can choose an escalating lifetime annuity that pays a lower initial income but then increases each year.
There are two types of escalating annuities:
- Fixed-rate escalating annuities – your income is guaranteed to rise each year by a fixed amount, say 3%.
- RPI-linked escalating annuities – your income is adjusted each year to reflect changes in the Retail Prices Index (RPI) so will rise and fall.
With an escalating annuity, the starting income is a lot lower than you would get from a level annuity.
It would take around 14 years for the 3% escalating annuity to catch up with the level annuity.
It would take 26 years before the total you received from the 3% escalating annuity exceeded the total paid by the level annuity.
You can compare annuity rates for single or joint-life, level or escalating annuities at Compare annuities. Enter the type of annuity you’re interested in and the size of your pension fund and see what you could get.