Updated: July 22, 2019

Growing Annuity

With a growing annuity your income can increase over time. Find out if this is the right pension option for you in our guide

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: July 22, 2019

Annuities can be a complex area of retirement finance and this isn’t helped by the fact that they come in many different varieties. In this article, we dispel some of the confusion by providing the key information you need to know about growing annuities and how they differ from the other types.

The following topics are covered below…

What is a growing annuity?

If you’re looking for an annuity to provide an income after you retire, then you’ll need to decide between a growing annuity, often called an increasing annuity, or a fixed annuity, also referred to as a level annuity.

What’s the difference between a fixed and an increasing annuity?

  • Fixed Annuity – Essentially you’ll be on a fixed income for the rest of your life, so if inflation increases dramatically, you could find yourself struggling financially. The upside is that fixed annuities usually provide a higher income than increasing annuities.
  • Growing Annuity – Sometimes referred to as an escalating annuity, it differs from a fixed annuity, in that essentially, it’s an annuity with growth, so your income increases as time goes by. As mentioned above, you will probably start with a lower initial income than that offered by a fixed annuity.

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Are there different types of escalating annuity?

Yes. You can choose to protect your growing annuity income against rising prices and costs in one of two ways.

  • Set Rate: This is an agreed amount that your annuity income will increase each year, usually between 3% and 5%.
  • Index Linked: Your escalating annuity income will increase in line with inflation.

Which one you choose is up to you, but we would recommend that you talk with one of the pension advisors we work with. They are experts when it comes to growing annuities and you can arrange a free, no-obligation consultation by making an enquiry with us.

Are there any downsides to an annuity with growth?

There are some things to consider. If you choose a set rate, then your income may not keep up with inflation.

If you choose an index-linked growing annuity, then your income could come down as well as go up in line with inflation. On the bright side, your money should still have the same buying power.

Is there a calculator?

If you want to know how to calculate growing annuity using a financial calculator, there are quite a few calculators you can access online.

Because everyone is different, with different circumstances, you need to bear in mind that the data you get from calculating a growing annuity, using one of these online services, should only be used as a guide.

For the most accurate figures, you should talk to one of the expert annuity advisors we work with. If you’re looking for the right advice, you can arrange a free, no-obligation consultation by making an enquiry with us.

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Once you’ve chosen the annuity that you think is right for you, you can’t then change your mind. So it’s vitally important that you get the right advice from the outset.

The pensions advisors we work with are experts when it comes to growing annuities and what you could expect from an annuity growth rate.

You can arrange a free, no obligation chat by making an enquiry with us, for advice on how to get the best financial outcome for your circumstances.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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