Suitability of annuity investment strategy

07 August 2023

Interest rate uncertainties can be worrying, especially when considering your income in retirement, as interest rates have a direct impact on annuity prices. An annuity lifestyle investment strategy is designed for those members who are looking to purchase an income for life at retirement, via an annuity. Is this you?

The main aim of the strategy is to protect your pension account against a fall in annuity income. This is achieved by steadily moving your investments out of equities and into bonds as you approach retirement to generate returns that go up and down broadly in line with annuity prices. This means that when your pension account value goes down, annuity prices will also be going down, so keeping the amount of annuity income that you get at retirement broadly the same. By steadily reducing the proportion of your account that’s invested in equities and increasing the proportion in bonds, the annuity investment strategy also reduces the risks of large losses in your account value (that aren’t offset by changes in annuity prices) the closer you get to retirement.

It's important to note that while the annuity strategy can provide some protection against annuity prices changes, it isn’t for everyone. It’s only for suitable for members who are planning to purchase an annuity at retirement. Make sure you review your investment options regularly, and if you’re unsure what option is best for you, speak to a financial adviser.