Fixed term Annuities

fixed term annuities

Until recently there was mainly conventional lifetime annuities (lifetime Annuity) and drawdown pension plans.  However, new products are now emerging.  These combine the certainty of a lifetime annuity, while still being able to grow, as in drawdown. These are called Fixed Term Annuities.

By using a Fixed Term Annuity, you may draw between 0% to 150% of a level annuity income.   This can be single life or a joint life. It depends which was bought.

Fixed Term Annuity Categories

Fixed Term Annuity contracts, have two main categories.  Plus a third, which is made up of drawdown with income guarantees.

  • Annuities with flexibility.  These are like lifetime annuities but they also have some income and investment flexibility.
  • Fixed term annuities.  These give a guaranteed income for a set period.  Also they have a value at the end of the term.
  • Drawdown with income guarantees.  Whilst like standard drawdown plans.  They do have some  income guarantees.  Some guarantees are for lifetime income and others for a set period.

Advantages of a Fixed Term Annuity

  • You may be given a minimum guaranteed income for life or a set period.
  • The amount of income available is greater than that available under capped drawdown.
  • You could be able to alter the income payments, up or down.
  • Your income may reflect any gains in the value of your fund.
  • Your spouse/dependant(s) can benefit from income in the case of your death (if applicable).
  • Your pension could be payable for a guaranteed minimum period (e.g. 5 or 10 years).
  • You have can take your tax free cash now. Enjoy the money or invest as you want.
  • Subject to legal limits. You can plan the amount of income that you want to take each year. This will allow you to use other income you may have.
  • You can lower your income and reduce your income tax bill. By reducing your income you could avoid higher rate tax.

Disadvantages of a Fixed Term Annuity

  • A rate of growth is assumed when setting the annuity rate. This gives you your income rate. However, there is no guarantee the growth will match that rate. Your income could fall or not increase.
  • Should you die, your dependants benefits may be less than those under other  plans. This depends on the type of product purchased.
Advantages or disadvantages depend on the details of the specific Fixed Term Annuity product used.

The Pension PlannerFixed term Annuities