Investment-linked annuities are invested in either a with-profits or managed fund. At the outset the starting income is selected between certain limits and in subsequent years the annuity income is recalculated to take account of the actual investment growth or losses.
The rationale for these policies is that an annuity is a long-term investment so it makes sense to invest in assets that may grow over time and provide a higher income in the future. The income could also reduce. As these annuities are more risky they are only suitable for those who understand the risks and can afford any future reduction in income.