Index-Linking
Annual revision of the amount of the life annuity according to an index (generally the consumer price index).
Full definition
Index-linking is the mechanism for the annual revaluation of the life annuity to maintain its purchasing power against inflation. It is provided for in the contract of sale and applies automatically each year.
The most commonly used index is the Consumer Price Index (CPI) published by the national statistical institute. In Luxembourg, it is STATEC that publishes this index. The revision may be upward or downward, although some contracts provide for a "floor" clause prohibiting any reduction in the annuity.
Index-linking is calculated as follows: New annuity = Old annuity × (New index / Old index). This revaluation is essential for the seller, as a non-index-linked annuity would significantly lose value over 10, 15 or 20 years of payments. It must be clearly stipulated in the authentic deed.
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Related terms
Life Annuity (the pension)
Sum paid periodically (monthly or quarterly) to the seller until their death, calculated according to the value of the property and life expectancy.
Authentic Deed
Official document drawn up by a notary that formalises the sale via life annuity and gives it enforceable status.
Annuitant (Seller)
The seller of the property under a life annuity, the person who receives the life annuity until their death.
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