A fixed term annuity is a type of drawdown arrangement that offers an alternative to conventional retirement income solutions, ideal for those who want to keep their options open in case their circumstances and financial planning needs change later in retirement.
How does it work? In return for investing in a pension fund from an existing pension scheme, a fixed term annuity pays you a fixed income - within government limits* - for a fixed term (typically for five years or more). You can choose the level of income you want to take at the outset, within those limits, plus any additional death benefits you want to include with your plan. These could be used, for example, to pass on a lump sum to a dependant or a beneficiary if you were to die before the end of the term.
If you survive until the end of the term, you will receive a guaranteed maturity amount, which you can use to reinvest into another pension product. This amount is known and fixed at the outset, and is not affected by investment performance.
Considerations Whilst the maturity amount is guaranteed, annuity rates in the future are not. This means future income levels may be higher or lower, compared to a standard annuity purchased today. Read about the advantages and disadvantages of fixed term annuities.
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Answers to common annuities questions