Updated: July 22, 2019

Index Linked Annuity Guide

A guide to index linked annuities

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: July 22, 2019

An index linked annuity is a retirement product that can offer the financial security of a steady stream of income . But in an age where many people feel are questioning whether their pension investments are performing as well as they could be, making smart financial decisions is more important than ever. So could an index linked annuity really be the best investment of your precious savings? And how does it compare to other pension investment options?

These are common enquiries we receive about index linked annuities. The pension advisors we work with have helped many people find their footing with the best pension plan for their situation.

In this article, we’ll cover…

What is an index linked annuity?

An index linked annuity is a financial product you can buy as an investment for your retirement. You buy the annuity in one lump sum and then it pays out regular income (usually monthly) from an agreed start date for certain period of time.

Some annuities, known as lifetime annuities, will give you guaranteed payments until the end of the holder’s life. Index linked annuities get their name for being an annuity that’s linked to the performance of a specific index, for example, the Retail Prices Index (RPI), one of the British government’s measures of inflation.

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How does an index linked annuity work?

An index linked annuity is more complex than a standard fixed index annuity due to its attachment to a specific index, such as the RPI. This can make it more of a high-risk, high-reward investment; the amount you get back could vary over time.

There’s the opportunity to earn a higher return on investment based on the performance of the linked index, but returns could also be lower than expected. Lower returns are often due to caps on the maximum amount of interest you can earn, earnings deductions from fees, or index performance.

However, just as there is a rate cap on your potential earnings, your losses will also be protected with a minimum rate of return, this is usually about 2%. Investment volatility may not be for everyone, but an index linked annuity could still return a higher yield than some other pension investments. Understanding the annuities market with its various options and their potential for reward or risk is key. That’s why financial experts recommend you speak to an index linked annuity advisor as soon as possible.

You can do this by calling Online Money Advisor at 0808 189 0463 or make an enquiry we’ll connect you with the right annuities expert for your situation.

Should I get an index linked annuity?

An index linked annuity could be worth considering as an investment option for retirement, depending on your needs and circumstances.

One of the main things it offers is the ability to benefit from investing some of your retirement savings in a way that is relatively safe with a guaranteed minimum return. However, it also costs money in fees and limits your potential to make a higher return.

In some situations, you may prefer to invest some money directly into dividend paying stocks where you can reap more rewards should your stock gain value. But this requires sound knowledge of how to invest in stocks and shares. Another option could be to choose a fixed annuity which pays out a ‘fixed’ retirement sum for an agreed period of time.

As with any financial investment decision, there’s no ‘right’ or ‘wrong’ answer to the question of whether you should get an index linked annuity. It will depend on your needs, situation, and investment preferences.

An expert annuities advisor can provide the professional, independent counsel you need. The pension experts we work with understand the details of the advantages and disadvantages of index linked annuities and can run you through options that are best for your situation.

Speak to an index linked annuities expert

Deciding how to make your hard earned money work best for your future requires carefully thinking through all possible options. Consider consulting one or two tried and proven pension advisors who operate independently from financial institutions.

At Online Money Advisor we only work with the best pension experts who are experienced in getting results for their clients. They understand the details of index linked annuities and can offer a clear and concise analysis of your top investment options. Give us a call on 0808 189 0463 or make an enquiry here, then sit back and relax while we do the hard work of finding the best advisor for your situation.

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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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