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<\/p>\nMany over-55s are missing out because they are unaware of a valuable trick that could guarantee income in retirement \u2013 without locking away their pension savings for life.<\/p>\n
Reliable income in retirement regularly features at the top of a pension saver\u2019s wish list. Traditionally, this has meant using your pension pot to buy an annuity, a financial product that can provide a set income for life.<\/p>\n
But this security usually comes with a lack of flexibility. Once you have bought an annuity, you are locked in for life and when you die the payments stop \u2013 unless you have bought death benefits for a spouse \u2013 and the pension fund used to buy the annuity is gone.<\/p>\n
But a \u2018fixed-term\u2019 annuity instead of the common \u2018lifetime\u2019 option could boost your retirement income, guarantee a future payout, keep your options open and avoid an unspent pot being lost if you die early.<\/p>\n
A fixed-term annuity pays out for a set period, usually five to ten years. You then get a lump sum at the end. And, if you die before the fixed term ends, the remaining funds are usually paid to a beneficiary.<\/p>\n
For example, a saver using a \u00a3100,000 pension pot to buy a five-year fixed term annuity could get a rate of 9 per cent, plus \u00a377,690 back at the end, compared to 7.75 per cent on a lifetime annuity.<\/p>\n
Advisers say these fixed-term annuities not only offer greater flexibility but also higher payouts, and more pension savers should consider them as an alternative to keeping their pot invested.<\/p>\n
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A \u2018fixed-term\u2019 annuity instead of the common \u2018lifetime\u2019 option could boost your retirement income<\/p>\n
The annuity comeback<\/p>\n
Workers who retire with defined-benefit pension schemes, also referred to as final-salary schemes, have a promise from their last employer that says it will pay them an income for life based on length of service.<\/p>\n
But outside of the public sector, these pension schemes have died out, as employers have cut costs and replaced them with cheaper defined-contribution schemes. Here workers and employers both contribute, and an investment pot is built up that the saver must turn into retirement income.<\/p>\n
For many years, the way most people did this was by buying an annuity. But annuities began to get a poor reputation after the financial crisis, when the knock-on effect of interest rates<\/a> being slashed sent their payouts tumbling for new retirees.<\/p>\n Savers who failed to shop around received poor deals, while for those who died early anything remaining in their pension was lost.<\/p>\n When former chancellor George Osborne announced his so-called pension freedom rules, which swept away the need for most people to buy an annuity with their pension pot, many savers gladly opted to keep their pensions invested and draw a flexible income instead as they needed it.<\/p>\n But with interest rates having risen again in recent years, annuities have staged something of a comeback and financial advisers say that for those who want reliable retirement income they are worth considering again.<\/p>\n A 65-year-old with \u00a3100,000 could buy an income of \u00a35,500 when pension freedom was introduced in April 2015, but could get \u00a37,800 on the same terms now.<\/p>\n Despite higher annuity rates on offer now, the idea of locking in for life still puts many savers off. Those who don\u2019t want to risk investing their pension or commit to buying an annuity for life have a halfway house option, however.<\/p>\n Higher interest rates have made fixed-term annuities better value, just as they have boosted rates on traditional annuities that pay a guaranteed income for the rest of your life.<\/p>\n They are also flexible not only because they are temporary, but because you can adjust the product conditions according to whether you want an income only, an income plus a payment at maturity, or simply a lump sum at the end of the agreed term.<\/p>\n > Mail Finance: Annuity calculator – see how much income you could get\u00a0<\/a><\/p>\n Fixed-term annuities: A bigger payout and flexibility<\/p>\n The problem with leaving your pension in the stock market and using so-called drawdown for ad hoc withdrawals is working out how much income to take without depleting your pot. There is also the risk of your fund collapsing if stock markets tumble.<\/p>\n Fixed-term annuities offer an income payout that rivals the return on the stock market.\u00a0<\/p>\n Meanwhile, the monthly income and maturity payouts are guaranteed, so you have certainty over what you will get. The downside is you don\u2019t get the same potential for growth from stock markets.<\/p>\n With a fixed-term annuity, you can take a 25 per cent tax-free lump sum at the outset, just like with any other pension arrangement.<\/p>\n You can also decide if you want: a higher income only during the fixed term, with nothing left at the end; a lower income during the fixed term, plus a guaranteed maturity payout at the end; or no income, just a guaranteed return at maturity, from the compound interest you accrued.<\/p>\n If you die before the end of the term, your estate or nominated beneficiary can receive the remaining income, the maturity value, or both depending on the options selected.<\/p>\n Justin Wysocki, of pensions advice specialist Pense, says fixed-term annuity offers certainty during the term but flexibility later<\/p>\n Justin Wysocki, chief revenue officer at pensions advice specialist Pense, says this kind of annuity offers certainty during the term but flexibility later, because at maturity you can move into ad hoc drawdown, buy a new annuity, or take the pension as cash.\u00a0<\/p>\n He adds: \u2018It offers a middle ground between full drawdown and a lifetime annuity. Fixed-term annuities are ideal for clients who don\u2019t want investment risk, want to access their tax-free lump sum, but aren\u2019t ready to draw income, or want control, certainty, and built-in flexibility for changing circumstances.\u2019<\/p>\n Providers include Canada Life, Legal & General, LV Insurance and Standard Life.<\/p>\n What income will a fixed annuity pay?<\/p>\n William Burrows, boss of pension information site the Annuity Project and a financial adviser at Eadon & Co, crunched the numbers for a lifetime versus fixed-term annuity.<\/p>\n For a 60-year-old, a \u00a3100,000 pension pot can purchase an annuity with \u00a37,600 of pre-tax annual income guaranteed for life, he says.\u00a0<\/p>\n![\"Justin](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2025\/08\/101079715-14987153-image-a-2_1754821421713.jpg\")
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