Quick guide to Investment linked Pension Annuities
Quick guide to Investment linked Pension Annuities
Many retirees do not realise that there are many different types of pension annuities available on the open market. The pension provider you saved with will most likely only offer one type of annuity which is usually the guaranteed pension annuity.
With investment linked pension annuities your pension annuity fund is typically invested in either unit linked or with profits investment funds and the level of income that you receive is linked to how well the investments perform, where the money is invested in with profits the income is attached to the level of bonuses awarded each year by the with profits annuity provider.
With these investment linked annuities there is potential for your income to increase each year, however there is also a risk that your future income may reduce. Therefore these types of pension annuities are not generally suitable for someone who cannot accept the risk of income reducing. Quite often these are investment linked pension annuities are purchased as part of balancing a retirement portfolio where 75% of the pension pot available may have purchased a guaranteed annuity and the remaining 25% is invested in asset-backed pension annuities such as investment linked annuity. This gives the retirement planning some balance so all the eggs are not in one basket.
Another popular use is those that have occupational pension income and saved in an AVC (additional voluntary contribution) scheme, this part of the retirement income may be quite small and therefore the annuitant may be prepared to accept a greater degree of investment risk.
If you are prepared to accept some investment risk with your pension annuity purchase then an asset-backed investment linked pension may be just the thing for you. As always with any financial decision if you do not understand the products then seek independent financial advice. Past performance is not a guide to the future and your income could go down during periods of volatility in the stock markets.