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Fixed Term AnnuityAll about Fixed Term Annuities answered here

Keeping your options open...

Following the changes made in the 2014 Budget (see New Flexibility), Fixed-Term Annuities are more popular with retirees than ever. With a Fixed-Term Annuity you can retire now taking the tax-free lump sum (if required) and then take an income of your choice for a set number of years. This can be anything from 3 years upwards. At the end of the term, a Guaranteed Maturity Amount (GMA) is paid and this can be used to buy an annuity based on future annuity rates which may be higher (although you don’t have to).

The main benefit of a fixed term annuity is that it allows you to keep your options open - you avoid locking into a lifetime annuity at the outset. When the term ends, you can shop around again for whatever type of pension product suits your circumstances at the time. At that point your health and lifestyle which may have deteriorated, as well as your increased age will be taken into account and will entitle you to a better rate.

A Fixed-Term Annuity allows those retiring now to access their tax-free cash and income, but defer making a decision as to how they take their income from their pension fund in the long term. However in the short term the tax-free cash can be used to pay off debts or for a one off purchase such as a holiday.

how a fixed term annuity works


Health as we age


Fixed Term Annuity key facts:

  • The term can be from three years upwards.
  • You can come out of most Fixed Term Annuities at any time within the term - terms and conditions apply.
  • You can take the Tax Free Cash as a lump sum, without taking any income.
  • The income you can take from Fixed Term Annuities is set by the Government Actuarial Department (GAD) rates. Until April 2015, (see New Flexibility)
  • At the end of the fixed term the GMA can be invested in a Traditional Annuity, Income Drawdown, Invested Annuity or even another Fixed Term Annuity. Tax Free Cash needs to be taken (if required) when the Fixed Term Annuity is set up as this option is NOT available at maturity.


How would I protect my loved ones with a Fixed Term Annuity?


A range of death benefits can be selected to a Fixed Term Annuity just like those for a traditional annuity Spouse's or dependents pension. See annuity options.


The Guaranteed period must not exceed the term of the Fixed Term Annuity.


How would you like your income paid?


Just like a traditional annuity a selection of income payment periods can be selected. Escalation of income is not available on Fixed Term Annuities.

New Flexibility - Pension Freedom 2015

Since April 2015 retirees have been able to withdraw their pension funds as income without restriction, effectively meaning that if required a retiree can take the whole fund as income in one go.

While this may sound attractive to many, the reality is that few will do so because of the tax implications. While 25% of the fund can be taken as a tax-free lump-sum, in most cases the remainder of the funds are taxed as earned income at your marginal tax-rate. This means in effect that the pension you take out is added to your income for that year.

Since April 2015 retirees can pick a term over 3 years to strip out their pension using a fixed term Annuity leaving no value at the end of the term.



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