Escalation of Your Pension in Retirement.

The higher the level of escalation you choose the lower the level of pension you will receive at outset.

There are three main choices at retirement:

1.  Take a level pension for life.

2.  Take your pension with a known fixed rate of increase each year.

3.  Link your pension increases to the Retail Prices Index.

1.  Just as it says, the pension will stay the same throughout your life.  It will not increase or decrease.  When you die, if you have chosen a spouses pension they will receive theirs on the same basis.  By opting for a level pension your pension will start at a higher amount as the insurance company does not have to allow for future increases.

2.  You may choose to have your pension increased each year at a fixed rate of 3% or 5%.  You will receive less at outset than option 1. above, but you will get an annual 'rise'.  If you choose increases of 5% per annum your starting pension will be lower than choosing 3% per annum.

3.  Index linking your pension to the Retail Prices Index will protect you against inflation to a reasonable degree but every company has a maximum in any one year that they will increase the pension by.  In today's low inflationary times this should not be a problem but if high inflation ever returns the ceiling might be applied.  

IF YOU ARE UNSURE ABOUT ANYTHING YOU SHOULD SEEK INDEPENDENT FINANCIAL ADVICE.