As lifetime annuity rates have improved significantly over the past 18 months, these changes have also benefitted fixed term products.
As an illustration, based on a quote1 produced by Canada Life, £100,000 invested over a 10-year term would generate a guaranteed income of £5,000 a year in that period, with a guaranteed maturity value at the end of the term of £98,498.
Nick Flynn, retirement income director at Canada Life comments: “Fixed term annuities really are the unsung hero of the retirement income world. With rates where they are today, in our example a client could effectively guarantee a 5% return on their investment, and a return of almost all of their original capital at the end of the 10-year term.
“Fixed term annuities can suit all types of clients seeking a regular income with certainty at the end of the term. With rates moving so positively in a relatively short space of time, they deserve a second look.”
How do fixed term annuities work?
- Clients can choose a regular fixed income over any period of between 1 and 20 years
- Can opt to receive a guaranteed maturity value (set at outset) at the end of the term
- At the end of the term, clients can choose to invest in another fixed term annuity, a lifetime annuity, flexi access drawdown or withdraw the fund value
- Fixed term annuities require pension savings of at least £10,000
Some reasons why a client would consider a fixed-term income plan
- Security, offering an income ‘bridge’ between retirement and state pension age
- Client is not keen on locking into a lifetime annuity at this point, but wants security over income for the term of the plan and flexibility over any future decision
- Client doesn’t qualify for enhanced lifetime annuity rates today (no health or lifestyle to declare) but thinks they may in the future
- Note that once the plan is set up any income and/or maturity value is set for the term of the plan and cannot be changed
|
