Financial firms are reporting growing demand for a product that helps bridge the gap between stopping work and getting your pension.<\/p>\n
Sales of retirement annuities have risen sharply<\/a> during the last couple of years, and now advisers are seeing a fresh surge of interest in what they say is one of the market\u2019s \u201clesser-known\u201d options.<\/p>\n An annuity is a product that turns an individual\u2019s pension pot into a regular, guaranteed income. The vast majority of people opt for one that provides an income for the\u00a0rest of their life, called a\u00a0lifetime annuity.<\/p>\n But more individuals are now buying a version that gives them an income for a set period \u2013 such as\u00a0five or 10 years \u2013 and an agreed lump sum at the end. They can then\u00a0decide what to do with that cash based on their circumstances at the time.<\/p>\n More people are interested in fixed-term annuities. This type of product is called a fixed-term annuity, and the retirement specialist Standard Life says it can be a way to secure a guaranteed income for a set period while giving you the flexibility to review your options later.<\/p>\n After falling out of fashion, annuities have become more popular partly because of higher annuity rates and tax changes, but also because they offer some financial certainty during turbulent times.<\/p>\n On top of that, a fixed-term annuity can give some breathing space if, say, you don\u2019t feel quite ready to sign up to a lifetime annuity or go into drawdown (where you withdraw a portion of your pension savings every year and leave the rest invested).<\/p>\n Standard Life says its data reveals there has been growing\u00a0customer interest in fixed-term annuities this year, while its rival Canada Life said recently it had experienced a \u201csignificant rise in demand\u201d for its version of this\u00a0product.<\/p>\n So how much income might you get from a fixed-term annuity?<\/p>\n This week Standard Life said a 62-year-old with a \u00a3100,000 pension pot could currently get a guaranteed income of about \u00a313,800 a year for five years, and would get a \u00a350,000 lump sum at the end of the term.<\/p>\n An annuity is a product that turns an individual\u2019s pension pot into a regular, guaranteed income. Photograph: Ascannio\/Alamy<\/p>\n This level of income is higher than the full new state pension of \u00a312,548 a year. You get that when you reach state pension age, which has started to rise from 66 and will hit 67 in April 2028.<\/p>\n According to the latest Standard Life research, 62 is, on average, the age when people would like to retire. So someone could use a fixed-term annuity to fund the period between stopping work and getting their state pension, providing some financial certainty.<\/p>\n Nick Flynn at Canada Life says these types of products are resonating with retirees \u201cbecause they solve real challenges, helping retirees buy time before committing to drawdown or purchasing a lifetime annuity\u201d.<\/p>\n He adds: \u201cCustomers are choosing the product to bridge the gap to state pension or defined benefit pension start dates, help fund specific commitments such as mortgage payments or school fees, or stabilise income in the earlier years of retirement.\u201d<\/p>\n
Photograph: De Visu\/Alamy<\/p>\n