Investment linked annuities are variable annuities – where the income you receive from the annuity is not fixed or guaranteed and depends on changing factors. An investment linked annuity is linked to an external investment product such as stocks and shares – and the income you receive depends on the performance of the investment. Investment linked annuities are commonly thought to be controversial owing to the element of risk involved in these products.
The fact is that investment linked annuities may well provide a lower income than conventional fixed income annuities if the investment they are linked to underperforms. However, there is also a chance that if the investment performs well, the income received from an investment linked annuity may be much higher than a conventional annuity. Investment linked annuities therefore do have an element of risk, as well as the potential for a higher reward.
Investment linked annuities have always been a part of the range of annuity products available on the market and most providers selling these annuities limit the risks associated with underperforming investments. Like any other type of investment product, investment linked annuities have their own pros and cons, and can suit people depending on their individual circumstances.
The most significant advantage of an investment linked annuity is that if the investment component performs well, the annuity can offer a much higher income over time than a conventional annuity. Like conventional annuities, investment linked annuities too can be customised to offer a guaranteed income over a certain period of time. Of course, this is subject to the performance of the investment product.
Most annuity providers that offer investment linked annuities allow them to be switched back to conventional annuities – sometimes also offering an open market option. However, this is not necessarily the case with all providers, so it is always important to fully understand all the terms and conditions of the particular annuity before buying.
Investment linked annuities are not controversial. They involve an element of risk, which must be understood fully before investing. It is likely that with investment linked annuities you will need constant and on-going financial advice depending on the performance of the annuity – this advice will generally need to be paid for.
These are some of the factors that must be considered before buying investment linked annuities. Like any other financial product – it is imperative to shop around in order to find the best annuity that suits you needs.