Are escalating annuities good value?

While many people approaching retirement may be thinking about the impact of inflation and the cost of living, most consumers who buy an annuity opt for the highest starting income, which is a level income which doesn’t increase over time. This is rather than opting for one of the escalating options, where the starting income is lower, but will increase over time in line with inflation or a fixed percentage.

But are these people making the wrong financial decision over the long term, opting for a level income rather than one which increases in line with costs?

The number crunchers at Canada Life have worked out that in fact, the annuity payback period when choosing an index linked annuity is so far into the future – 22 years in fact - compared to a level starting income, most customers will be better financially with the higher starting income.

Put another way, someone buying an annuity at age 65, and choosing an escalating income over a level income, would be aged 87 (for a fixed 3% annual increase) or aged 91 (if choosing RPI linked) before their total income beat the level income.

How the numbers shape up1/2


Starting income pa

Annual income break even

Total return break even

Total income to year 22

Total income to year 26









Year 15 (£7,410 pa)

Year 26





Year 12 (£7,178 pa)

Year 22



Source: Canada Life annuity rates, as at 24.10.2023. Based on a customer aged 65, with a pension of £100,000. No guarantees.


Nick Flynn, retirement income director at Canada Life said:

“Annuities are the only 100% 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.”




Press enquiries should be directed to:

Elle McAtamney at Canada Life,

Notes to editors:

  1. Source: Canada Life benchmark annuity rates over time, aged 65, £100,000 purchase price, no health or lifestyle factors, level, RPI linked and 3% escalation. Rates as at 24.10.2023.
  2. Source: Canada Life has assumed an average RPI rate of 4% over the period as illustrative only, and makes no economic forecasts of the actual rate of RPI. RPI could average higher than, or lower than, 4%. If RPI averages higher than 4%, then the ‘total return break even’ point timeframe will reduce compared to a level starting income.

About Canada Life:

Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Great-West Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies.  Great-West Lifeco has over 38 million customers worldwide and £1.532trillion assets under administration (as at 31 December 2022). 

Canada Life Limited began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown and maintained its position as the market leading provider of group insurance solutions.1 Canada Life acquired Retirement Advantage on 3rd January 2018 for an undisclosed sum. The acquisition added over 30,000 retirement income and equity release customers and more than £2 billion of assets under management including a £1.5 billion block of in-force annuities to Canada Life. 

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance Limited and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland. 

Stonehaven UK Limited, registered in England and Wales no. 05487702. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. 

Stonehaven UK Limited is authorised and regulated by the Financial Conduct Authority. 

  1. Canada Life MI & Swiss Re, 2022