Is an inflation-linked annuity or a level annuity better value?

What makes more sense as a retirement plan: an inflation-linked annuity or a level annuity?

Couple look at pension annuity options as they sit together at kitchen table.
Level annuities pay a higher starting income than inflation-linked annuities, but the latter could prove better value for money over the long term.
(Image credit: yongyuan via Getty Images)

Inflation is low right now, hovering just above the Bank of England's 2% target, raising questions over whether buying an inflation-linked annuity is worth it anymore.

UK inflation was 2.6% in the 12 months to March 2025, the latest figure available. This was down from the 2.8% figure recorded in February – and a far cry from the double-digit inflation seen at the height of the cost-of-living crisis.

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Type of annuity

Starting income

Approx income taken after 20 years

Level, single life, five-year guarantee

£7,881

£157,620

Escalating at 3% pa, single life, five-year guarantee

£5,785

£155,400

Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.