The annuity payback period for those selecting an index-linked annuity extends up to 22 years into the future, according to Canada Life.
When buying annuities, the majority of retirees favour the largest initial income, choosing a level income that never changes rather than options with increasing income linked to inflation or a fixed percentage.
According to analysis from Canada Life, someone opting for an escalating income would need to reach age 87, for a fixed 3 per cent annual increase, or age 91 for RPI-linked, before their total income surpasses that of the level income option. This suggests that, in many cases, choosing a higher starting income may be a more favourable financial decision over the long term.
Canada Life retirement income director Nick Flynn says: “Annuities are the only 100 per cent secure and risk-free way of generating a retirement income that lasts as long as you do. However, inflation has the power to erode your buying power over time, which is why annuity providers offer the ability to inflation proof or index-link your income so that your income can increase in line with your bills.
“While it’s easy to get lost in the myriad of options of available on annuities, one thing appears to be a sure-fire bet. For most people, when you’ve made the decision to buy an annuity, choosing the certainty of a level income is likely to be the best economic decision they will make.
“For those concerned about inflation, often a blend using annuities and income drawdown can deliver an optimum retirement income. Annuities deliver the security of income while leaving some of your pension invested in drawdown can be a natural hedge against cost-of-living pressures.
“Alongside doing your own research, we’d always advocate speaking to a specialist annuity broker or financial adviser. Not only will you receive tailored advice, you’ll also receive the best annuity rate and shape suitable to your individual circumstances.”