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Fixed Term Annuity

Fixed-Term Annuity

A fixed term annuity uses your pension to give you an income for a set number of years during your retirement.

An annuity is a way for people over the age of 55 to receive a regular income during retirement. In exchange for this regular income, you will hand over your pension pot to your chosen annuity provider. There are a few different types of annuity products to choose from, such as a lifetime annuity, invested annuity and fixed-term annuity.

When you buy a fixed term annuity, you have a lot more freedom and you get to choose the following:

  • The term of the annuity, bear in mind there is a minimum term of three years.
  • Other annuity options, such as single or joint, fixed or increased.
  • Whether you want your income to be guaranteed each month or for it to be an investment-linked income.

Fixed-Term Annuity Explained

What is a fixed-term annuity?

A fixed term annuity uses your pension to give you an income for a set number of years during your retirement. The term of your fixed term annuity is decided by you, so you can determine whether you want a retirement income for 5 or 25 years. At the end of your annuity term, you will have a guaranteed maturity amount. Your guaranteed maturity amount is determined at the beginning of your annuity arrangement and you can use the amount to invest in another annuity or retirement income product, should you wish to do so. You may want to use the maturity amount to buy another annuity if the rates have improved since you took out your original fixed term annuity.

Your maturity amount will also be affected by the income amount you choose. If you have a high-income amount, your guaranteed maturity amount will be lower and vice versa. This is worth bearing in mind if you are wanting to use your maturity amount to put towards another retirement income product.

Why choose a fixed term annuity?

A fixed term annuity may be a good option if you do not want to be locked into an annuity term for the entire duration of your life. You are essentially in the driving seat, as you get to determine the length of your term. You also have a bit more freedom with a fixed term annuity as you can decide to change it when the term ends – you may even find you can get a better deal.

You are still entitled to your 25% tax-free cash from your retirement pot if you opt for a fixed term annuity. However, if you want to take the tax-free cash, you need to take it at the beginning of the term because it will not be an option when you are offered your guaranteed maturity amount.

Other forms of annuity

Lifetime annuity

A lifetime annuity has a few similarities to a fixed term annuity but one of the biggest differences is the length of the term. As we mentioned previously, a fixed term annuity allows you to choose the length of the term, whereas, with a lifetime annuity, you are fixed into the term for the duration of your life.

If you are someone who would like to know exactly how much you will be receiving on a monthly basis for the rest of your life, then a lifetime annuity may be your preferred option.

Enhanced annuity

If you are suffering or have suffered from an illness, you may be entitled to an enhanced annuity. This is where providers expect those who are ill or have been ill to have a shorter life expectancy and therefore, they are prepared to pay you a higher income.

Retirement Technician Speaking to Customer

Getting Advice

If you would like some more information on a fixed-term annuity or any other form of an annuity, then give a My Pension Expert advisor a call today. Getting advice on an annuity is incredibly important as the wrong decision could have a serious impact on the income you will receive during your years in retirement.

All our customers enjoy bespoke annuity quotations specifically matching their personal circumstances. We’re not tied to specific pension products or rates and use our unique technology to calculate and provide the best value deals in the marketplace.