16% of people still hope to retire before they turn 60. Experts say that fixed-term annuities
‘Little-understood’ pension deal will pay UK workers to retire early
A little known pension deal “pays you to retire early”, retirees are being told, as the Department for Work and Pensions (DWP) state pension age looks set to rise – again.
Research by investment firm Hargreaves Lansdown found that 16% of people still hope to retire before they turn 60. Experts say that fixed-term annuities – a little-understood version of the traditional lifetime annuity – can provide a guaranteed income for a set number of years and then hand back a lump sum, sometimes larger than the amount originally paid in.
Under one example, a 60-year-old gives an insurer £500,000 to buy a fixed-term annuity paying an income of £11,937 a year for seven years. When the policy ends, they receive £587,737 back, making total returns worth £678,102.
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That’s enough to cover a “bridge” between early retirement and receiving the state pension at 67 – and potentially leave savers better off.
Marianna Hunt from Fidelity International said fixed-term annuities could suit those wanting to keep their options open.
She told the Times: “Some people are put off from taking out a lifetime annuity because they want to benefit from any future stock market growth.
“But, when a fixed-term annuity matures, you have your options open.”
She added: “Annuity rates are looking very attractive by historic standards. One of the reasons annuities have not been very popular in the past ten years or so is because rates have not been very appealing. However, there is no guarantee (these rates) will last.”
Retirement and annuities expert William Burrows said: “People want to have their cake and eat it.
“They want a high level of income but want the flexibility that if they die, there is money back, or some kind of flexibility in the future.
“With fixed-term annuities, you still can’t have your cake and eat it, but it does give you some flexibility in the future.”