Fixed Term Annuity

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Guaranteed income for a specified time...

A fixed-term annuity provides a guaranteed level of income for a specified time, a fixed-term, for example five years, rather than for your lifetime. At the end of the specified term a guaranteed lump sum is paid, known as a maturity sum. The maturity sum is fixed and guaranteed when the annuity is purchased and is not dependent on stock market performance – it can’t go down, but nor will it go up.

You can choose the level of income you’d like to receive during the fixed-term (within Government limits) but the higher the income the lower the guaranteed maturity sum will be.

At the end of the specified period you can reinvest the maturity sum in another fixed-term annuity or other pension or savings product. As you will be older and/or if your health has deteriorated you may be eligible for an enhanced annuity, which could provide you with a higher income.

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Fixed-term annuities can be attractive to people who anticipate their personal circumstances or income requirements changing during their retirement. They allow you to review your personal circumstances after a period of time and make investment decisions based on your needs at that time and your near future predictions. If for example you have a small amount of mortgage remaining a higher level of income may be useful for five years to pay this off, after which your income requirements would reduce and a conventional annuity may provide an adequate income.

Provided Value Protection has been included, fixed-term annuities return a lump sum to your spouse or partner (or other named beneficiary) should you die during the specified term but if death benefits aren’t selected income payments will stop and the remaining funds won’t be paid.

Although the flexibility of a fixed-term annuity may suit some, there are risks. Annuity rates may decrease in the future, so the level of income you can buy with the maturity sum in the future may be less than you could have bought at the outset. Likewise a higher income in the short term will leave a smaller fund to invest after the fixed-term, which will reduce the future level of income that you can buy. As with conventional annuities, the terms of a fixed annuity are fixed for the life of the annuity. Neither the income nor the maturity sum can be altered during the term.