Investment-linked annuities also pay you an income for life, but the amount you get fluctuates depending on how well the underlying investments perform. If the investments do well, they offer the chance of a higher income. But you have to be comfortable with the risk that your income could fall if the investments don’t do as well as expected.

All investment-linked annuities guarantee a minimum income if the fund’s performance is weak.

With investment-linked annuities, you can also opt for joint or single annuity, guarantee periods, value protection and higher rates if you have a short life expectancy due to poor health or lifestyle.

Things to think about
Once you buy an annuity, you can’t change your mind, so it’s important you obtain professional financial advice before committing to one.

If you have a very limited life expectancy, an annuity may not be the right option for you.Think carefully about whether you need to provide an income for your partner or another dependant after you die.

What happens when you die?
If you have a single annuity and no other features, your pension stops when you die. Otherwise, the tax rules vary depending on your age.

If you die before age 75
Income from a joint annuity will be paid to your dependant or other nominated beneficiary tax-free for the rest of their life. If you die within a guarantee period, the remaining annuity payments will pass tax-free to your nominated beneficiary then stop when the guarantee period ends.

Any lump sum payment due from a value protected annuity will be paid tax-free

If you die age 75 or over
• Income from a joint annuity or a continuing guarantee period will be taxable at the beneficiary’s highest
tax rate

• Joint annuity payments will stop when your dependant or other beneficiary dies

• Any guarantee period payments stop when the guarantee period ends
• Any lump sum due from a value protected annuity will be taxable at 45% if paid before 6 April 2016 and at the beneficiary’s highest tax rate if paid after that date