What are Fixed Term Annuities?
People leaving full time employment will have changing financial needs through the various phases of their lives beyond work. A key point to consider is age 75 (roughly halfway through many people’s “retirement”), by which time current Government legislation requires you to buy a lifetime annuity, or an ‘alternatively secured pension’.
There is a new type of annuity product that has been designed to provide security and allow you to reconsider your options at the end of the Plan term. They enable you to make your retirement income decisions in two or more stages, rather than buying a lifetime annuity straight away. Firstly, you can invest in a flexible annuity up to the age of 77 and secondly, at age 77, you can consider your options again when you will have a clearer idea of your personal circumstances and financial requirements at that time. You should of course bear in mind that this will not give you the certainty provided by a lifetime annuity.
Flexible annuities give you choices for your financial arrangements now, and in the future. For example, if you are in your early 60’s and currently in good health, why buy an inflexible lifetime annuity now if you may benefit from an enhanced annuity (higher income) if you are in poorer health later on in life? Why buy an irrevocable spouse’s pension now that you may want to change in the future? And why be stuck with an ordinary lifetime annuity where you may lose much of your investment if you die?
Everyone is different, and everyone’s circumstances are almost certainly going to change during retirement. Flexible annuities allow you to choose from a range of income and death benefit options now, as well as deciding what maturity amount you wish to have returned at the end of the term. You have worked hard to save this money so the following features of a flexible annuity will be important to you:
- A guarantee that your income is secure, subject to Government income limits not being exceeded.
- A guaranteed predetermined maturity amount at the end of the Plan term. Depending on your age at that time, this amount can either be used to buy a lifetime annuity from an annuity provider of your choice, or a further post-retirement pension product. Unfortunately, pension rules mean that you cannot take the cash!
- Should you so choose, the Plans guarantee that your investment will not die with you. Your spouse / civil partner can receive an income or lump sum or it may be possible to provide a lump sum to a nominated beneficiary.
- You may benefit from the opportunity potentially to obtain a higher income in the future if your health has worsened during the term of your annuity.