Fixed Term Annuity

Information concerning Fixed Term Annuities

What is a Fixed Term Annuity?

Fixed term annuities have by and large been a popular option for pensioners/retirees. There are benefits to investing in a fixed term annuity, the strongest reason is that it has a certain element of flexibility; you are no tied into a lifetime annuity when you go ahead with the plan.

When the term ends, you are at liberty to look around for different pension products that may better suit your circumstances. Your increased age along with any lifestyle changes and health issues would be taken into account with the likelihood of offering you a better rate.

As with drawdown, you are still entitled to take a lump sum, you can in fact take all of your fund, please be absolutely aware that only the first 25% of the fund is free from tax.

How does it work?

Patrick has worked really hard for 40 years and wants to retire.

He has an investement fund of £200,000

He takes 25% as a cash free lump sum and invests the remaining £150,000 into a fixed term annuity for 5 years.

Patrick decides he wants to take an income of £12,000 a year for the 5 years.

Each year the pot is being eroded.

Even though the pot is reducing it is still accruing an annual interest.

At the end of the 5 years,a pot of £105,000 is returned to Patrick.

After 5 years the overall return is £165,058 (income received plus compound interest)

Important facts concerning fixed term annuities:

marker2  You don’t have to take an income, you can just take the cash free lump sum

marker2  The Government Actuarial Department (GAD) affects the amount of income you can take from a fixed term annuity

marker2  Some fixed term annuities allow you to come out of the scheme at any point you decide, specific terms and conditions may apply.

marker2  At the end of the term, the fund can be invested in an income drawdown scheme, another fixed term annuity, an invested annuity or just a traditional annuity.

How would I look after my family with a Fixed Term Annuity?

A fixed term annuity has a range of death benefits similar to those found in traditional annuity packages with dependent/spousal pension rights.

The period of guarantee cannot exceed the period of the fixed term annuity

Choosing your income

A fixed term annuity has a range of death benefits similar to those found in traditional annuity packages with dependent/spousal pension rights.

The period of guarantee cannot exceed the period of the fixed term annuity

Regulation changes post April 2015

An announcement from the government determined that retirees can withdraw their pension funds as income without restriction. A person could, if they wanted to, withdraw the entire fund in one instance. This really is not a good idea due to the possible tax implications. Only the first 25% is exempt from tax.

If you had £100,000, only the first £25,000 would be tax free – to make your money go further please speak to one of our advisers.

You can use a fixed term annuity to extract the funds from the pension over 3 years to reduce the fund value to 0 when the term is complete.

Want more information?

Retirement options should never be decided on a whim, they deserve careful consideration. We believe that all our customers should receive the same service and options that we ourselves want in our retirement. If you’re unsure about what is right for you, or you simply want further information to help you make the right decision please talk to us.

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