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Fixed Term Annuity

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What is a Fixed Term Annuity?

A fixed term annuity pays you a guaranteed income for a set period of time. The term can be between one and 20 years, with five to ten years being typical. The money you pay for the annuity is invested and at the end of the term, if you haven’t drawn the full amount of your pension investment, you should get a ‘maturity amount’. You can then use the maturity value to choose another pension-income option such as a Lifetime Pension Annuity or a new Fixed Term Annuity.

They provide the reassurance of knowing exactly what return will be achieved from your pension investment and can be set up to provide income and/or a guaranteed maturity value at the end of the term.

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Who might be suitable for a fixed term annuity?

You might be suitable for a fixed term annuity if you:
  • – want to access your Tax Free Lump Sum but are not yet ready to commit to a fixed income from the balance of the investment for the rest of your life.
  • – believe annuity rates will increase because of higher interest rates in the future.
  • – think your health is likely to worsen and you might become eligible for an enhanced annuity at some point in the future.
  • – require a guaranteed maturity value at the end of the plan term.
  • – want to control and manage your pension’s liability to income tax.
  • – prefer the certainty of knowing exactly what return you will get from your pension investment.
  • – are not yet ready to fully retire.

What are the Benefits of a Fixed Term Annuity

  • – Flexibility – you can take income at whatever level you chose with the remaining investment held in a secure environment. You’re not tied in for the rest of your life, like a lifetime pension annuity, so you keep your options open. You have control over what to do with your maturity fund once the term ends
  • – Security – you’ll know how much income you will receive over the course of the plan and its maturity value. This makes planning for retirement easier. Once you sign up for a fixed annuity, your pension fund is removed from the volatility of financial markets. You are given a guaranteed maturity value that will be available to you at the end of the term. 

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Do Fixed Term Annuities Pay a Death Benefit?

A fixed term annuity will usually allow you to build in death benefits if you die before the end of the term such as ‘value protection’ which guarantees that at least the initial investment is returned or, ‘plan protection’ which guarantees a plan will continue as you originally intended, up until the maturity date in the event of early death.

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Fixed Term Annuity

What are the rules of a fixed term annuity?

There are certain rules which apply to this type of pension arrangement, the main one’s are:

  • – Normally up to 25% of the initial investment can be taken as a Tax Free Lump Sum.
  • – Income drawn after any Tax Free lump Sum has been paid is treated as ‘Earned Income’ and subject to income tax and paid under normal PAYE rules with tax deducted at source.
  • – Any death benefit is paid free of tax if the plan owner dies before age 75.
  • – Any death benefit is subject to income tax at the recipient’s highest marginal rate if the plan owner dies after age 75.
  • – When taxable income is drawn after any Tax Free Lump Sum has been paid the amount that the plan owner is allowed to invest into a new (money purchase) pension investment reduces to £4,000 per annum.
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Fixed Term Annuity

How does a fixed term annuity work?

When you buy a fixed term annuity, you pay a lump sum in return for a regular retirement income. You can usually decide whether you receive income monthly, quarterly, or annually.

The income you receive will depend on:
– the amount you pay
– your provider’s annuity rates
– the length of the annuity
– personal factors such as your age and state of health

The money you pay for the annuity is invested by your provider at a fixed rate of growth. At the end of the annuity period, you will receive a maturity sum, which is your original investment plus growth, minus the annuity income you’ve received in the meantime. The amount of income paid to you directly affects the maturity sum you receive. So, if you choose to have a lower annuity income, you’ll receive a higher maturity sum at the end.

If you die before your fixed term annuity ends, the rest of the money will usually be paid to a beneficiary of your choice. How this works will depend on your provider and the terms you’ve agreed between you. If you’re unsure, seek independent financial advice on this.

We’re here to help you choose your pension options and find the best fixed term annuity

If you are considering purchasing a Fixed Term Annuity, we will make sure you are aware of all of the options such products allow and provide you with enough information for you to make an informed choice as to whether a Fixed Term Annuity is right for you.

Contact one of our fixed term annuity team

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important things you should know

FREQUENTLY ASKED QUESTIONS

Most pension investments allow up to 25% to be taken as a Tax Free Lump Sum. Anything drawn over this amount will be subject to income tax at your highest marginal rate. Tax will usually be paid under an emergency tax code with any overpaid tax repaid in the following tax year or earlier if you put a claim into HMRC.

Click here to calculate the amount that will initially be deducted.

Also known as a ‘Money Purchase’ pension this is a pension where the benefits are not defined and the value of the pension investment will depend entirely on how much money has been paid in and what return on the investment has been achieved.

Often referred to as a ‘Final Salary’ pension which is where the benefits that the pension will provide at retirement are defined and not dependent on how much money has been paid in. These types of pensions do not have a published investment value though it is usually possible to obtain what is known as a Cash Equivalent Transfer Value (CETV) where the scheme administrators will calculate how much they are prepared to let you have if you forgo the defined benefits built up whilst you were a scheme member.

Tax will most likely have been deducted under PAYE rules using an emergency tax code. You can either wait until HMRC reconcile your tax affairs in the next tax year or claim for early repayment of any overpaid tax by using form P53 or P53Z. These forms are available from www.gov.uk. 

You cannot normally access the money in your pension before age 55.

Our business model involves us asking you a series of questions designed to enable us to gather sufficient information and understanding of your requirements that we can present you with information on all of the options available to you. We aim to do this in such a way that you are fully empowered and confident enough to make an informed decision as to the best outcome for your personal circumstances. If at any time during the process it becomes evident that you require and/or need formal recommendations for a particular course of action and we will refer you to an independent financial adviser.

Our Other Pension Services and Products

Enhanced Annuities

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Enhanced annuities work in the same way as a standard pension annuity but also consider your lifestyle and health conditions. If you qualify for an enhanced annuity you would expect it to provide more income for the rest of your life than a standard pension annuity would provide.

Lifetime Annuities

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A lifetime pension annuity is designed to provide you with an income and is payable for the rest of your life as a minimum. The funds that you have saved into your pension pot are used to purchase an annuity either from your existing pension company or from a new pension income provider.

Flexi Access Drawdown

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Flexible Access Drawdown products provide a flexible way to take your pension and range from relatively low risk products with guaranteed returns to high-risk products investing in all manner of asset classes. Whilst providing flexibility they do not give a guaranteed income for the whole of life. 

Releasing Tax Free Cash

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When you are 55 or over you can access your pension and, if you wish, take a tax-free lump sum. You can then invest the remainder in a pension product and either take an income or keep it invested. You can normally take up to 25% of your investment tax free and use this money as you wish.

Tax Free Lump Sum

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If your pension has not been crystalised (accessed previously) you can take a tax-free lump sum from the pension investment. This is normally in the form of a 25% tax free lump sum payment, but some types of pension schemes do have enhanced benefits and permit more than 25% to be taken.

State Pensions

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The Basic State Pension is available to men born before 6th April 1951 and women born before 6th April 1953 and the New State Pension available to those born later. We have links to the Government information pages and the State Pension Age Calculator and a link to obtain your State Pension Forecast.

Equity Release

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Is a way of taking some of the equity (investment wealth) built up in your property as tax-free cash to provide additional income in retirement or to pass over inheritance money to the family before dying, repay other mortgages or borrowing or to just spend on something you have always wanted.  

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Local And UK-Wide Fixed Term Annuity Services

With our office in Ilminster we can provide face to face meetings for people in Taunton and Yeovil. We are may also be able to arrange face to face meetings in the areas of Barnstaple, Bridgwater, Glastonbury, Shepton Mallet and Wells areas. 

We also provide our reliable pensions services to clients in Dorset, Somerset, Gloucester, Wiltshire, Bristol, Cornwall, Dorset and Somerset.       

We are happy to have video meetings with people and therefore can provide a visual meeting to anyone in the UK. We are happy to talk through your options over the phone regardless of your location, so we can discuss your needs. We also are very happy to communicate with you through email which many customers now prefer, we can therefore provide a full UK coverage.