For anyone on a fixed income, the effects of inflation over time should be a serious consideration.
Over a sustained period of time, consistently high inflation can substantially reduce the amount of goods and services you can buy if your income has not risen to keep pace.
To help protect against the effects of inflation, you can choose to increase your annuity income in line with inflation by opting to have your income linked to the Retail Prices Index, which measures the average change in the prices of certain goods and services purchased in the UK. This option is often referred to as escalation. However it is worth noting that if you select RPI without a floor level, your income will fall if RPI is negative.
By choosing escalation in line with the Retail Prices Index you will receive a lower level of income intially compared with a level annuity, but in sustained periods of high inflation it may help your income keep pace.
You can also choose to increase your annuity in line with a set percentage that you have chosen from a range we offer. This is called ‘fixed escalation’. This option does not guarantee to keep pace with inflation, but instead it guarantees to increase your pension each year by the percentage increase you have chosen.