When you buy an annuity with your pension funds, you will have an option of choosing an escalating annuity income. This is an income that increases by a fixed rate over time.
For example, you could choose for your income to rise at 3% per year.
The main benefit of selecting an escalating annuity income option is that it helps to maintain the buying power of your annuity income.
One of the problems with annuities with an increasing income is that they usually have a lower starting income than fixed or level annuities and depending on how long you live, you might end receiving less income from an escalating annuity over your lifetime than you would from a fixed (or level) annuity.
The decision over whether or not to choose an escalating annuity income is a difficult one to make.