What is a Fixed Term Annuity?

Recent turbulence on the stock market as well as falling annuity rates have left some retirees wondering whether they should commit to a lifetime annuity or defer the decision for sometime in the future. An annuity is a once in a lifetime purchase which cannot be altered or changed once bought, so retirees are rightly concerned as to what is the best time to go ahead and buy one. For most the decision to delay cannot be more than a few months as they require an income from their pension fund once they finish work. A fixed term annuity is one way to solve this issue and to bridge the dilemma of lifetime commitment vs need for an income. A fixed term annuity allows an individual to invest part of their pension fund in a short term annuity or perhaps five years, whilst also holding some of their fund back should circumstances (both personal and economic) change in the future. It allows one to receive an income whilst also not committing 100% of the pension fund at one time.

One key benefit of fixed term or flexible annuities is that you could get a higher annuity income in the future if your health changes. For example you maybe fit and healthy at 65 but develop medical conditions by the time you are 77. If you had bought a standard level annuity at 65, you would not be able to change that to an enhanced annuity which would pay a higher rate. However if you bought a fixed term annuity instead you would not be locked into a lifetime rate. There’s also the option to include income and death benefits as well as deciding what maturity amount you wish to have returned.

Here are some of the key options you can factor into a fixed term annuity…

-As long as government limits are not reached, your income will be safe and secure.

-You can agree maturity amount when you buy the plan, this is paid out at the end of the plan when you can either buy another post retirement product or a standard annuity. Note that you cannot take the money in cash however.

-Your partner can receive an income or lump sum should you pass away before the end of the plan.