Investment Annuities

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Investment annuities are a comparatively recent concept in the financial services market.

A conventional annuity is by its very nature inflexible, as it cannot be altered once started and unless you have chosen to include regular increases in your annuity payments outset, your annuity income will remain level throughout your lifetime, thereby gradually being eroded by the effects of inflation.  See below for more information.

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Thinking of buying an Annuity from your pension fund or from private capital? Our Annuity Service provides:-

  • Depending on your pension provider up to 40% more annuity income
  • Information on investment annuities including  with profit annuities
  • Assessment of your circumstances to find the most suitable type of annuity for you or whether there are any other options more suited to you
  • Information on lifestyle annuities - including  smoker annuities and impaired health annuities you may get even more annuity income
  • Comparing annuity rates to ensure that you maximise your annuity income
  • Explaining the investment annuity options available to you
  • Helping you with the relevant paperwork to ensure that you annuity is processed smoothly

There are different types of annuity for different requirements and our Guide to Annuities gives a brief overview of this financial product.


Investment Annuities:

In response to this investment annuity products have been developed. With traditional annuities the insurance company assumes all of the investment risk – you purchase your annuity with a lump sum and it is up the insurance company to invest this money in order to provide your guaranteed income. You will still receive your annuity income irrespective of whether the insurance company has invested your lump sum wisely.


To address the perceived issue of inflexibility, with investment annuities, however, your annuity payments are linked to the performance of an investment fund and by doing this, you bear the investment risk, not the insurance company. Some investment annuities have an “assumed growth rate” so rather than opting for a level annuity or one which increases each year, you assume a minimum annual rate of return. This will be the minimum annual investment return that needs to be achieved by your chosen investment fund and if the fund achieves the rate that you have assumed, your investment annuity will remain level. If the investment returns achieved are higher than that which you have assumed, your annuity for that year will rise and conversely, if the investment returns are less, then your annuity will also fall for that year.


So, if you assume an investment return of 3%, and that is what is achieved, your annuity remains level. If the following year, the investment return on your chosen fund is 10%(because of favourable equity markets) then your annuity income will rise too, although not necessarily by this amount. Conversely, if the investment fund actually loses value, the level of your investment annuity is also likely to fall. Investment annuities may carry a minimum income guarantee below which your annuity income cannot fall although this is not a feature of all investment annuities.


The level of investment annuities that you receive will depend upon the following:

  • Your age at outset
  • Gender and lifestyle (i.e. if you are a smoker)
  • The purchase price
  • Annuity rates at the time of purchase
  • Type of annuity required, ie, single life or whether you want to include a widow/widower’s pension
  • Rate of return assumed (if applicable)


The success or otherwise of investment annuities depends to a very large degree on the investment fund that you choose. Assuming a greater level of investment risk, ie, going into an investment fund which has the potential to provide greater returns, will in turn provide you with the greatest potential to achieve a rising income. Of course, investment funds which provide the greatest potential for investment returns are also more inclined to suffer greater levels of loss, due to their higher volatility, and so you are equally likely to have an income that falls too.


By choosing a very low risk investment fund in order to minimise the chances of your annuity income falling also means that you are minimising your chances of your investment annuity increasing because low risk funds will generally have lower levels of investment returns, although this is not always the case!


Investment annuities can overcome the problem of your traditional annuity income being eroded due to the effects of inflation and this is especially true in a market where share prices are rising. In a time of turbulent share markets, however, this could result in reducing annuity incomes, particularly if high investment rates have been assumed.


Investment annuities aren’t for everyone but they are an option which should be explored. The concept is quite a complex one will generally only be suitable for those with larger investment funds or where the annuity will not be the main source of income in retirement AND for those willing to assume a level of risk that makes the potential expected gain over and above what could be expected from a conventional annuity worth it.

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ProviderAnnuity QuotesAnnuity ServiceSpecial FeaturesGet Quotes
YesComparison of leading UK annuity providers. Enhanced annuities available if you have a medical condition. Enhanced rates available for smokers.Up to 40% more incomeGet Quotes >

 Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.