With uncertain global economies and mediocre stock market returns, are you looking for a guaranteed return with your retirement fund? Look no further than fixed-term annuities, an increasingly popular option for retirees who want the certainty of a return without losing control of their funds.

Fixed-term annuities falling under drawdown rules offer a guaranteed income and/or return with no investment risk whilst retaining death benefits. With increasing interest rates, guaranteed returns over 5% are now available (July 2023), but these might not be around for long. 

With terms ranging from 3 to 30 years, you have the flexibility to choose what works best for you. And if that’s not enough, these annuities also allow you to retain your funds for your beneficiaries upon death, providing security and legacy planning.

Key Takeaways

  • Fixed Term Annuities offer a reliable and flexible way to generate returns and income without investment risk.
  • Choose the options to suit you. Set your income, term and how much income you need.
  • Fixed-term annuities have become incredibly popular due to rising interest rates.
  • Fixed-term annuities allow funds to be retained for beneficiaries upon death and the flexibility to move into Drawdown, buy and standard annuity, withdraw cash in full or buy another fixed-term annuity on maturity. 

What is a fixed-term annuity?

Fixed-term annuities can be an attractive option for those who want to bridge income gaps and have flexibility in their financial planning. Unlike other investment options, fixed-term annuities provide a guaranteed income regardless of market fluctuations. They can be purchased using funds from a pension pot and offer various annuity options such as duration, payout frequency, and death benefit choices.

A few providers offer fixed-term annuities, so you want to find the one with the highest guaranteed rate.

A guaranteed return amount is quoted once the term length, death benefit, and income options have been chosen. This is the amount you are guaranteed to receive back at the end of the term, no matter what happens in the investment markets. 

At the end of the fixed term, individuals can buy a new fixed-term annuity, take the pension as taxable income, buy a standard annuity income or move their funds into Drawdown. Fixed-term annuities provide individuals peace of mind by offering a reliable retirement income and guaranteed maturity value.

What options do fixed-term annuities offer

With fixed-term annuities, you have various options, allowing a tailored income plan to suit your needs. Here are four key options to consider when selecting a fixed-term annuity:

  1. Term length: Fixed-term annuities offer the flexibility to select a specific period for your investment. You can choose a shorter or longer term based on your financial goals and retirement plans.
  2. Income: You can choose your required amount depending on whether you need to take an income in retirement. The more income you choose for the fixed-term plan, the lower the guaranteed maturity value. If you want to grow your pension drawdown plan, you can choose no income, and the maturity amount will be higher. 
  3. Death Benefit: You can choose various options to ensure that any unused pension fund will be passed onto your loved ones if you die during the term. 
  4. Fixed Rates: You will receive a guaranteed maturity value when you choose the above options. This will be based on the length of the plan, death benefits, and income chosen will all affect the fixed return applied. 

Understanding these options allows you to shape the plans to suit your needs. 

Fixed Term Annuities vs Drawdown

Historically low-interest rates have meant Fixed Term Annuities were largely unused in retirement planning. Equally, a decade of decent stock market returns meant no need to look elsewhere. However, with increased interest rates and uncertain stock market returns, which option should you now choose?

Fixed Term Annuities provide a guaranteed income for a specific term, with a lump sum at the end of the term. They offer known guaranteed maturity sums and potential benefits from increased annuity rates. With fixed-term annuities, you can pass on the fund value to your loved ones upon death.

On the other hand, Drawdown allows you to take income directly from your pension funds while keeping it invested. It provides flexibility in choosing when to take income but comes with investment risk and uncertain investment returns. It also enables passing on the fund value to loved ones.

Depending on your risk appetite, a fixed-term annuity might be an option for guaranteed returns. If you’re happy with a 5%+ (currently 5.6% available July 2023) return per annum over five years, they may be worth considering. If, however, you feel stock markets have greater growth potential, and you can afford (or can tolerate) your pension fund going down, Drawdown might be right for you. 

Another note is that Fixed Term Annuities have no annual charges, unlike Drawdown. My clients hate nothing more than paying a fund manager when the fund is going down. With Fixed Term Annuities, there are no annual investment charges as it’s not an investment; it’s simply cash tied up for a certain period. 

It’s worth remembering that you don’t have to choose one option or the other. You can choose a Fixed Term Annuity for part of your funds whilst leaving the rest in Drawdown. 

When deciding between these options, consider factors such as inflation protection, maturity date, and desired level of control over your retirement income strategy.

What happens if I die in a fixed-term annuity?

In the unfortunate event of your passing during a fixed-term annuity, your loved ones can still benefit from the remaining pension savings. Unlike standard annuities, which are typically lost back to the provider on death, fixed-term annuities offer more attractive death benefits.

You can choose value protection, spousal income, or a guaranteed period when setting the plan up. This means that your loved ones can receive a portion or all of the remaining funds in accordance with these payout options. It’s important to consider the tax implications when making these decisions.

Fixed-term annuities offer flexibility and peace of mind for both you and your beneficiaries in terms of guaranteed return drawdown and preserving wealth for future generations.

Is now a good time to buy a fixed-term annuity?

Arguably now is a good time for you to consider a fixed-term annuity. Inflation has forced the Bank of England to increase interest rates, which have resulted in better Fixed Term Annuity rates. However, as inflation starts to fall, the currently available rates might not be around for long. 

Locking into a rate now, for several years, could become more valuable if interest rates start to fall. Equally, a guaranteed return might be welcome if stock market returns are flat or negative over the next few years. 

   Benefits of Fixed-Term Annuities Considerations 

    Guaranteed income and return No investment risk  

  Higher returns compared to other options Surrender value for flexibility  

  Retains funds for beneficiaries  

Advantages of fixed-term annuities

Here are some key advantages to consider:

  • Known, guaranteed return available from the outset
  • Enjoy flexibility by going back into Drawdown, purchasing another fixed-term annuity, buying a lifetime annuity, or withdrawing your funds once the term expires.
  • Choose from a range of terms, from 3 to 30 years, allowing you to align your financial goals with your desired timeframe.
  • Preserve your wealth for future generations by retaining the funds for your beneficiaries upon death.

Disadvantages of fixed-term annuities

Fixed-term annuities may limit your ability to access your funds and make financial decisions based on changing circumstances.

One disadvantage of fixed-term annuities is that once you’ve committed to a specific term, you can’t easily change or withdraw your funds before the term expires. This lack of flexibility can be problematic if you suddenly need a large sum of money or if there are significant changes in your financial situation.

Additionally, fixed-term annuities don’t provide any potential for investment growth. While they offer a guaranteed income and return with no investment risk, this means that you won’t benefit from any potential increases in interest rates or market gains during the term.

Therefore, it’s important to carefully consider these limitations before choosing a fixed-term annuity as part of your retirement strategy.

Frequently Asked Questions

Can I change my options during the term of a fixed-term annuity?

No, once you’ve chosen the options at the outset, these are fixed for the term. The guaranteed maturity value is based on the options chosen at the start, which is why these can’t be changed during the term. 

Are there any penalties for withdrawing funds from a fixed-term annuity before the term expires?

There may be penalties for withdrawing funds from a fixed-term annuity before the term expires. It is important to review the terms and conditions of your specific annuity contract to determine if any penalties apply.

Can I purchase a fixed-term annuity with money from my pension pot?

Yes, you can purchase a fixed-term annuity with money from your pension fund. You can either use crystallised or uncrystallised funds.

Are fixed-term annuities suitable for everyone, or are there specific eligibility criteria?

Fixed-term annuities may not be suitable for everyone. There are specific eligibility criteria that need to be met, such as age and health conditions. It is important to consult with a financial advisor to determine if it is the right option for you.

What happens to the remaining funds in a fixed-term annuity if I die before the term expires?

If you die before the term of your fixed-term annuity expires, the remaining funds can be passed on to your beneficiaries. This allows them to receive the value of the annuity as part of your estate.


In conclusion, if you’re fed up with paying investment managers who aren’t performing or want a guaranteed return, a fixed-term annuity might be worth considering. 

With attractive fixed returns, these annuities offer an attractive choice in the current climate. The flexibility of choosing the duration that best fits your needs, along with various options upon expiration, provides added convenience.

Additionally, the ability to retain funds for beneficiaries ensures security and legacy planning. However, it’s essential to carefully consider both advantages and disadvantages before making a decision.

Book an appointment to discuss Fixed Term Annuities.

© 2021 The Pension Transfer Specialist Arthur Browns Wealth Management are Authorised & Regulated by the Financial Conduct Authority – Number 825843.