Investment pathways: Which pathway aims to preserve annuity purchasing power?

• A. Pathway 2
• B. Pathway 4
• C. Pathway 1
• D. Pathway 3

Answer: (D)

Preserving the real value of income over time requires assets that guard against inflation. Annuities deliver fixed payments in nominal terms, so without inflation protection their purchasing power erodes as prices rise. The pathway that focuses on inflation-protected or real-return strategies uses instruments designed to keep pace with inflation—such as index-linked gilts or inflation-protected securities and real-return funds—so the value of future payments isn’t chipped away by rising prices. This makes it the best fit for maintaining an annuity’s purchasing power, unlike pathways that aim for capital preservation or growth without specifically hedging inflation, which can leave real purchasing power vulnerable over time.