A fixed term annuity gives you an income over a set term, unlike a pension annuity which gives you an income for life.
How does it work?
You choose a term you want to receive an income over in exchange for your money.
You can usually buy a fixed term annuity using your pension fund, but some companies also let you buy one with your savings.
You can usually choose a term ranging from 3 to 25 years.
How much will you be paid?
The income you get is set by the annuity company you choose, but there are other factors that can affect your rate such as having medical conditions.
You can also use this annuity broker to help you find the best fixed term annuity rate from the companies in our comparison.
What term should you choose?
This depends on your circumstances, once you buy a fixed term annuity you do not have any access to your money until the term ends, apart from the income you get.
This means you should only choose a term which you can afford not to have access to your money for.
What happens after the fixed term?
You are free to take any money left after you have taken your income over the fixed term.
This is known as the maturity amount, the higher the income you choose at the start, the smaller your maturity amount will be.
A fixed term annuity does not charge you excessive tax penalties for taking your money at the end of the term, unlike a lifetime annuity.
How much do you need to buy one?
Most companies require a minimum investment to buy a fixed term annuity, for example, at least £10,000.
If you have a large amount of money you want to use, most companies accept investments up to £1 million while some do not set a maximum investment limit.
What happens if you die during the fixed term?
It stops paying you an income, but some annuity companies let you protect your annuity so you can pass any remaining income onto a spouse.
This usually lowers the income you get from your annuity, but would continue paying an income to your spouse until the end of your chosen term.
Fixed term annuity FAQs
Is it ever too late to buy a fixed term annuity?
Some annuity companies have a maximum age limit, but there are many that have no age restriction.
When can I buy a fixed term annuity?
When you reach 55, but make sure you check the age requirement with each company to be sure.
Can I withdraw from my fixed term annuity?
No, once you buy an annuity the only money you can take is the income you get from it. This is due to change in 2017 though, find out more here.
What happens if my annuity company goes bust?
The Financial Services Compensation Scheme (FSCS) will cover 100% of the value of your annuity if your company goes bust.