Investment-linked Annuities

Investment-linked annuities offer the potential of higher income than level or increasing annuities, but are riskier and liable to fluctuations. You must be fully prepared for your income to reflect any changes in the stockmarket, which of course can go down as well as up. However, a combination may be the answer.

They can be either ‘with-profits’ or unit-linked.

With-Profits – Your income is correlated to the insurance company’s with-profit fund. Generally, income will be derived from two sources, a minimum starting income which may be guaranteed, and bonuses which are announced annually. Bonuses can be guaranteed for the duration of the annuity, or ‘special’ which would be payable for a limited period.

Unit-linked – Your income is directly linked to an underlying fund of investments. This would generally be either a medium risk managed fund, a higher risk fund or a tracker fund. Each would require careful consideration and explanation to make sure you fully understand the objectives of the fund, and of course the possibility of greater fluctuations in your income. These should only be considered by those with a large pension fund.