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, depending on the options you choose, you'll be paid a guaranteed amount (called a maturity value). This amount is pre-agreed when you take out the 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.

An enhanced annuity pays a higher guaranteed income than a normal annuity as it is based on a reduced life expectancy. If you are in poor health or a smoker, you may be able to benefit from an enhanced annuity.

Fixed term annuity rates are the return you will receive from a fixed term annuity if you purchase it. When you get a fixed term annuity quote, you will have a time limit (the rate guarantee period) to purchase the annuity and secure the rate offered (for instance, 30 days).

Annuity rates fluctuate with the market and are also affected by:

• Term length, i.e. how long or short the length of your annuity is set to pay out for
  
• Initial amount paid in
  
• Income and/or maturity value selected
  
• Death benefit, i.e., how much is being paid out if you die while the annuity is active
  
• Economic conditions

At maturity, your annuity pays out the agreed lump sum. Some providers allow up to three partial withdrawals during the term (minimum £5,000 each), which are deducted from the eventual lump sum but leave regularly scheduled income unaffected.

If you die during the term, any death benefits you have chosen will become payable. If you haven’t chosen death benefits, the plan will end and nothing further will be paid.