Fixed term annuities
Retire with a guaranteed income
WHAT IS A FIXED TERM ANNUITY?
Fixed term annuities explained
- A fixed term annuity is a retirement product that allows you to choose a period of guaranteed income without committing your pension savings for the rest of your life.
- A fixed term annuity pays a guaranteed regular income for a specified term. At the end of the agreed term, you'll be paid a set amount (called a guaranteed maturity value), which is agreed when you take out the product.
- The amount you’ll get regularly is generally calculated on your investment size, less any income you receive. Charges are also deducted and any money earned on your invested pension funds is added.
- You can choose to either receive a set regular income with or without a lump sum at the end, or to just receive a lump sum at the end of your term.
HOW FIXED TERM ANNUITIES WORK
Interested in a fixed term annuity?
Here are some considerations worth thinking about...
Here are some considerations worth thinking about...
- A fixed term annuity uses all or part of your pension to buy a guaranteed income for a set term, from as little as one year to 40 years.
- Fixed term annuities aren’t typically attached to market performance, so they offer a set return from the outset, regardless of economic circumstances.
- You could keep the rest of your pension fund invested, which means it may continue to grow while you also get an income from your annuity.
- You have the option to add on death benefits and increase income in line with inflation to keep up with increasing costs.
- Fixed term annuities can be combined with other retirement options, giving you more choices with your pension savings.
- At the end of your fixed term annuity, you can either take out another one, take a lump sum payment or move the money into another type of retirement product.
WHAT YOU NEED TO KNOW BEFORE CHOOSING A FIXED TERM ANNUITY
Important information to consider when choosing a fixed term annuity
Advantages of fixed term annuities
- Fixed term annuities give you a guaranteed income for a fixed period of time while knowing how much money you'll be left with at the end.
- You can protect your income by taking out a death benefit, which continues to pay an income to your partner or spouse after you die or pays out a lump sum.
- Buying a fixed term annuity gives you the security now with the option of buying another annuity at a later date should rates improve or your circumstances change.
- You can help protect your income against inflation by choosing a fixed percentage of up to 8.5% each year.
Disadvantages of fixed term annuities
- There is a risk rates could fall meaning your guaranteed maturity value may be less than you expected and leave you without enough to live on.
- Changes in legislation or tax rules could be disadvantageous.
- Potentially better investment returns are available with other retirement options.
- If you cash in your annuity before the end of the term you may get back significantly less than the guaranteed value.
- The higher the income, the lower the amount paid as a guaranteed maturity value at the end of the term. This means there would be a lower amount to provide any future income with.
Annuity vs drawdown
What's the difference
Tools and Calculators
Handy tools to support your retirement planning
Annuity Calculator
Using today's rates our calculator can give you a snapshot of the income your pension savings could buy you in retirement. You can also choose to add your health details to personalise your quote even more!
Fixed term annuity calculator
Our fixed term annuity calculator gives up to date results based on current rates. We shop around the whole of the market to get you the best quote for your specified income and/or guaranteed maturity value.
State pension Age
Looking for your state pension age and what you can expect to get? Our friends at Gov.uk have you covered.
HOW DO I BUY A FIXED TERM ANNUITY?
What’s the next step?
Purchasing a fixed term annuity can be done directly via a provider or through a pension adviser. When purchasing a fixed term annuity, you will need to decide how long you would like the plan to last and consider the income you would like to receive during this time.
Depending on whether you are talking directly with a provider or whether you are speaking with an impartial adviser, you will discuss rates and how much your funds will be worth when your plan ends.
FIXED TERM ANNUITY FAQs
Common questions about fixed term annuities
Before purchasing a fixed term annuity, you can take up to 25% of your pension pot as tax-free cash. Any payments from your annuity after this will be taxed as income.
Much like a salary – if your total income, including your annuity income, goes above your personal income tax allowance, the money will be taxable.
At the end of the agreed term, you'll be paid a set amount (called a guaranteed maturity value). This amount is pre-agreed when you take out a fixed term annuity product.
Once your term has ended, you will need to consider your next options – for instance a new annuity product or drawdown. As always, if you aren't sure, we would recommend speaking to an adviser.
Still have questions about fixed term annuities, pensions and retirement?
What is the difference between financial advice and guidance?
What is financial advice?
Advice is given by professional advisers such as IFAs, financial planners, wealth managers and pension specialists. Advice is regulated by the Financial Conduct Authority (FCA), and will give you tailored recommendations for your individual circumstances and ensure that the best option or combination of options for your circumstances is found, even if this goes against what you originally thought to be the best decision for you. Taking advice usually costs money.
Speak to one of our friendly advisers today and see how we can help you find the best income for your pension. We can:
- Advise on all types of pensions.
- Maximise your pension income.
- Help you make the best possible use of your hard-earned savings.
What is financial guidance?
Guidance gives a general overview of the options available on the market for free by highly trained specialists. Guidance services won't tell you what to do with your money and you will need to research the market to find the right products and providers to suit your needs and preferences. There's no protection available, but taking guidance is a good place to start to help you understand the various choices available.
For guidance on the options available to you, we recommend visiting Pension Wise, a free government service from MoneyHelper that offers impartial guidance on your pension options.
To book an appointment call 0800 138 3944, 9am to 5pm Monday to Friday, visit their website, or email at [email protected].
Pension Wise won't recommend any products or tell you what to do with your money.
Financial advice
Need help?
Have a commitment-free chat with one of our friendly advisers today. Start your conversation by giving us a little more detail.
Mon to Fri 8.30am-6pm
For TextDirect: First dial 18001
We will record and/or monitor calls for training and audit purposes