Third-Way, Unit-Linked and With-Profit Annuities
If you are prepared to accept some risk that your income may fall, or rise, depending on the performance of an investment fund, there are options.
Some annuities offer a guarantee that your income will not fall below a fixed level which can be anything up to 60% of the income you could expect from a lifetime annuity. Others do not offer a guarantee.
The important point about these types of annuity is that the income paid can fall as well as rise as they are linked to the performance of funds invested in the stock market. If you cannot afford to take that risk, you should probably avoid these types of annuity.
As a general rule, a fund needs to grow by at least 7% every year after all charges for the income to beat a lifetime annuity. Charges can add up to 2% a year to the growth the fund needs to achieve.
These arrangements are usually more suitable if you have enough guaranteed income already and want to take some risk with smaller pension savings (for example, a free-standing additional voluntary contribution scheme). This might be because you can top up your income from other assets.
