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 a lump sum from an existing pension scheme, a fixed term annuity pays you a guaranteed income - within government limits* - for a fixed period of time (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 other beneficiary if you were to die prematurely.
If you survive until the end of the term, you will receive a guaranteed maturity lump sum, which you can use to reinvest in another pension product. This amount is usually known and fixed at the outset, and not affected by investment performance.
The amount of income you can buy with this lump sum is not guaranteed and so could be higher or lower than the income you would have received had you bought a standard annuity at the outset. Read about the advantages and disadvantages of fixed term annuities.
Fixed term annuities offer you flexibility, allowing you to take account of changing circumstances and income needs later in retirement at the end of your chosen plan term.
* Government limits: the income you can take from a fixed term annuity is subject to limits set by Her Majesty's Revenue & Customs (HMRC) in conjunction with the Government Actuary's Department (GAD). The current maximum income limit HMRC will allow is 100% of the equivalent amount available under a standard annuity, using rates set by HMRC according to GAD.
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Just Retirement's Fixed Term Annuity