• Cumulative inflation has risen by 42%* since 2020, sharply eroding the real value of retirement incomes
  • Inflation linked annuities have kept pace, yet almost half of over 50s don’t know that annuities can include inflation protection
  • Inflation-linked annuities could overtake level annuities from 2029 under some inflation scenarios

After many years of relatively modest price rises, inflationary pressures have been a defining feature of the 2020s. Prices have risen by 42%*  since 2020, once the cumulative impact of inflation has been considered, according to new analysis of RPI data from Standard Life.

For many retirees, rising bills mean tougher choices about everyday spending as they do not benefit from wage growth which tends to accompany inflation. With ongoing geopolitical uncertainty, and the energy price cap rising from July, Standard Life examined how inflation-linked annuities have performed in recent years.

How inflation-linked and level annuities have performed since 2020

A 65-year-old who purchased an inflation linked annuity with a £100,000 pension in January 2020 would have initially received an income of £2,900 a year (a rate of 2.9%). By March 2026, this would have risen to £4,050 annually, generating a total income of over £21,000.

Over the same period, a level annuity purchased with a rate of 5.04% would have delivered more than £31,000.  While this has provided a higher income to date, inflation-linked annuities can help protect spending power over time, giving retirees greater confidence their income will keep up with rising costs.

Across different potential inflation scenarios, an inflation linked annuity overtakes a level annuity between around 9 and 29 years after purchase. If the high inflation seen over the past five years were to repeat, an inflation linked annuity bought in 2020 would deliver around £46,000 over the following decade, compared with £50,400 from a level annuity, with the inflation-linked income expected to outpace thereafter.

 

 

**Figures are illustrative and based on an inflation linked annuity purchased in 2020 with a starting rate of 2.9% and a £100,000 pension pot. Average inflation estimate is average inflation from 2020 – 2024 and projected forward. Actual inflation and annuity rates may differ.

Inflation between 2020 and 2024 came as a shock to many, following more moderate cumulative rises of 20% between 2010–2014 and 15% between 2015–2019. The recent surge was driven by steep increases between 2021 and 2023, including the 11.6% RPI peak in 2022, before easing more recently.

This comes as Standard Life research reveals that 94%*** of over 50s say inflation is a key consideration when thinking about their pensions, yet 48% don’t know annuities can include inflation protection.

We’ve seen a significant cost of living shock since 2020, with prices rising sharply over the past six years. While there were hopes inflation was easing, geopolitical uncertainty earlier this year has already had knock-on effects, with energy bills rising again this month.
 

For those in or approaching retirement, rising prices are a key concern, and factoring in some inflation protection is an important part of planning.

One way to manage this is to ensure fixed costs are covered, so increases have less impact on discretionary spending. Inflation-linked annuities can help provide that protection and offer some peace of mind that income will keep pace with rising costs, while another option is buying annuities in stages to benefit from higher rates as you get older.

- Pete Cowell, Head of Annuities at Standard Life

Level annuities remain a strong and popular option
Level annuities remain the most common choice for retirees, offering a higher guaranteed starting income and simplicity. FCA data shows they accounted for around 80% of annuity sales in 2024/25****. 

Today, a healthy 65-year-old with a pension pot of £100,000 might expect a rate of 7.5%, compared to an inflation-linked annuity (5.0%). This would result in a higher income of £7,500 for a level annuity in contrast to £5,000 expected from an inflation linked annuity.

For some, inflation-linked annuities won’t be the right choice, and level annuities remain a vital option, particularly for those with higher spending early in retirement or who prioritise immediate income.

However, for others, inflation protection can provide valuable long-term resilience, helping to maintain spending power as prices rise. The past few years have shown how this can support incomes over time, giving retirees greater confidence about sustaining the lifestyle they want in later life.

- Pete Cowell, Head of Annuities at Standard Life

Media enquiries

Notes to editors

Note 1: Saver Profiles:

Year Annual income from
a level annuity		 Annual income from
an inflation-linked annuity under high inflation estimates (8%)		 Annual income from
an inflation-linked annuity under high inflation with avg inflation estimate (6.4%)		 Annual income from
an inflation-linked annuity under high inflation with low annual inflation estimates (2%)

1

 £5040 £2900 £2900 £2900

2

 £5040 £3130 £3090 £2960

3

 £5040 £3380 £3290 £3020

4

 £5040 £3650 £3500 £3080

5

 £5040

£3950

 £3720 £3140

6

 £5040 £4260

£3960

£3200

7

 £5040

£4600

£4220

£3270

8

 £5040

£4970

£4490

£3330

9

 £5040

£5370

£4780

£3400

10

 £5040

 

£5090

£3470

11

 £5040

 

 

£3540

12

 £5040

 

 

£3610

13

 £5040

 

 

£3680

14

 £5040

 

 

£3750

15

 £5040

 

 

£3820

16

 £5040

 

 

£3900

17

 £5040

 

 

£3980

18

 £5040

 

 

£4060

19

 £5040

 

 

£4140

20

 £5040

 

 

£4220

21

 £5040

 

 

£4310

22

 £5040

 

 

£4400

23

 £5040

 

 

£4480

24

 £5040

 

 

£4570

25

 £5040

 

 

£4660

26

 £5040

 

 

£4760

27

 £5040

 

 

£4850

28

 £5040

 

 

£4950

29

 £5040

 

 

£5049

***Research conducted by Opinium with a nationally representative sample of 2,000 UK adults aged 50 and over between 27 August and 1 September 2025. Participants were asked a series of true/false statements in relation to annuities.

****FCA Retirement income market figures – 2024/25

 

About Standard Life:

Standard Life is a retirement specialist focused entirely on retirement saving and income.

We are proud to manage around c£317bn in assets on behalf of our 12 million customers, and we champion the belief that everyone's journey to and through retirement can be better. 

With our focus entirely on retirement savings and income we want to be the business that people trust to guide their retirement journey, helping our customers achieve better outcomes and greater financial security in later life. 

As a FTSE 100-listed group we are using our size, expertise and influence to shape the world our customers will retire into, and are committed to helping three million customers by 2035, take action towards a better retirement. 

Standard Life is a responsible investor with a clear commitment to supporting a more sustainable future. The company has achieved its net zero goal across its emissions for 2025 and is working towards net zero investment portfolios by 2050 or sooner.

Standard Life is recognised as a leading employer, with long-standing accreditation as a Living Wage Employer, Living Pension Employer and Carer Positive Exemplary Employer and in 2025 became one of Britain’s Most Admired Companies in 2025.