Advisers tell The i Paper annuities are making a comeback after a decade of decline following the 2015 pension freedoms
More people are looking to buy retirement products that give them guaranteed annual income in their later years, according to financial advisers.
Most pension savers have the option to use their retirement pot to buy an annuity – which gives a fixed annual income – as opposed to gradually drawing down money from their savings once they hit 55.
These annuities have previously been unpopular because they offered relatively poor returns, but advisers say that higher interest rates mean better payouts now.
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While traditional lifetime annuities – which give a lifelong income – remain part of the resurgence, fixed-term annuities – which give income for typically 3-25 years – are gaining particular traction among those who want dependable income without committing their pension pot permanently.
Asad Khan, an independent financial planning consultant, said he has seen enquiries for fixed-term annuities more than double in the past year.
He said: “Interest in fixed-term annuities has risen sharply over the past year. Once a niche option, they are now a regular feature in retirement conversations.”
Karen Barrett, founder of financial advice platform Unbiased, said she has also seen an uptick in interest in fixed-term annuities.
She said: “While not everyone chooses a fixed-term product, advisers are increasingly discussing how these options can form part of a broader retirement strategy, balancing predictability with flexibility.”
How fixed-term annuities work
A fixed-term annuity is a retirement income product that pay a regular income for a set period rather than for life.
At the end of the term, a pre-agreed lump sum – the guaranteed maturity value – is paid out.
Andrew King, pensions specialist at Evelyn Partners, said many savers were using fixed-term annuities to bridge an income gap while they waited for another pension.
For example, someone who retires at 62 and is waiting for a defined benefit (DB) payment or the state pension to kick in at age 66 or 67 may purchase a three- or four-year annuity.
Why annuities are back in favour
The Bank of England’s rapid rate rises between 2022 and 2024 pushed up gilt yields – the return on investing in government debt.
These yields underpin annuity pricing, leading to significantly higher guaranteed income rates than were available just a few years ago.
The appeal of guaranteed income has also strengthened following several years of economic turbulence.
Energy price shocks, rising borrowing costs and persistent inflation have heightened concerns about household finances in retirement.
How annuities can be used to bridge retirement income gaps
A fixed-term annuity can be a tool for those looking to retire early and bridge the income gap between stopping work and reaching state pension age.
According to the Association of British Insurers, between April and December 2025, 7,300 fixed-term annuity contracts were sold, with a total value of £750m.
Marianna Hunt, personal finance expert at pension firm Fidelity International, explained: “By converting part of a pension pot into a guaranteed income for a set number of years, savers can secure dependable cashflow during this interim period.”
For example, with a £500,000 original investment (after taking tax-free cash), you could currently purchase a 10-year fixed-term annuity at age 57 that pays £12,500 gross per year.
This is broadly equivalent to a state pension-like income and would include fixed payment increases of 2.5 per cent per year, to help cover inflation.
Over the term, this would deliver £140,042 in guaranteed income, and at the end of the 10-year period you would receive a guaranteed maturity value (GMV) of £667,608. That means your £500,000 has effectively paid you £807,650.
She added: “At the end of the agreed term, you receive a maturity value and have the option to reassess your retirement income strategy.
“You could move to drawdown, purchase another annuity, or use the remaining funds in another way that better suits your circumstances at that time.”
She said this flexibility is a central attraction for retirees who want reassurance over essential spending while preserving choice later on.
If you die within a 10-year guaranteed period of a fixed-term annuity, your family or beneficiaries will inherit the remaining income payments, either as continued instalments or a lump sum.
Why combining annuities and drawdown is becoming popular
Financial planners say the growing interest in fixed-term annuities is closely linked to the rise of what’s known as blended retirement strategies, which combine annuities with income drawdown, which is when you take money from your pension ad-hoc.
Under this approach, part of a pension pot is used to secure guaranteed income to cover core living costs, while the remainder stays invested to provide growth potential and flexible withdrawals.
A fixed-term annuity can play a key role in this strategy. It can provide dependable income during the early years of retirement, when spending is often higher and financial adjustments are most significant, while allowing the rest of the portfolio to remain invested.
Not a one-size-fits-all solution
Despite growing interest, advisers stress that annuities are not suitable for everyone.
Khan said: “It’s vital to remember that while these provide certainty, a fixed income may not keep pace with inflation and the choice involves a trade-off regarding access to the original capital sum during the term.”
Whilst Barrett said: “Fixed-term annuities can be a useful tool for some, but they are just one of several ways to manage retirement income, and professional guidance helps people make informed decisions for their long-term financial security.”
Individual circumstances such as health, life expectancy, tax position, income needs and tolerance for investment risk all influence whether guaranteed income products are appropriate.
Some retirees may benefit from enhanced annuity rates due to medical conditions, while others may prefer to retain full flexibility through drawdown.
Many are opting for a combination of approaches to balance security and growth potential.
With annuity rates still comparatively attractive and retirement risks more visible after years of economic uncertainty, advisers expect fixed-term annuities to remain in demand as savers seek stability now while preserving flexibility for the future.