A number of pension providers have promised that their annuitants will not be affected if inflation drops below 0 per cent.
Some annuity products have an index-linking element which would see the payments go up in line with inflation.
Should inflation fall, payments could also fall, although John Perks, managing director of LV= retirement solutions, pledged to protect annuitants’ payments.
He said: “While we always keep the situation under review we are pleased to confirm that none of our annuitants will experience a decrease in income as a result of near future deflation announcements.
“We believe that living costs for pensioners are not falling as fast as the RPI index indicates, and this has reinforced our decision not to reduce the income of any of our annuity customers in the current environment.”
Bank of England governor Mark Carney has predicted that inflation – currently at 0 per cent – is likely to fall into deflation over the course of 2015 due to factors such as the low price of oil.
L&G and Aviva also confirmed that their annuity payments would not decrease in the event of deflation.
Specialist annuity provider Just Retirement said most contracts would have a “zero floor” preventing payments from decreasing but some contracts might not include this. However, a spokesman for Just Retirement said inflation-linked options accounted for less than 1 per cent of its annuities.
Standard Life said it also varied depending on the product.
Graham Cross, chief executive for London-based Helm Godfrey, said: “For those looking for an income throughout retirement, while drawdown will continue to be an attractive option for many of our clients, annuities will still have their place.”