Fixed Annuities | Money Saving Advisors
Learn about fixed-term annuities that pay a guaranteed income for a set period or your lifetime.
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A paycheque for retirement
Fixed annuities might sound like something from a finance textbook, but they're actually pretty simple. You hand over a lump sum to an insurance provider, and in return, you receive a guaranteed income for a set period - or for life. For many in the UK, it's a way to make retirement less of a strain.
How fixed term annuities work
- Guaranteed income, no guesswork
When you buy a fixed annuity, you lock in a steady income - usually monthly, quarterly, or annually. It doesn't fluctuate with market ups and downs, so you always know what's coming in. - One lump sum payment, many options
You typically buy a fixed annuity with pension savings or other savings. Then you choose how long the income lasts - 5, 10, or even 30 years, or for life.
What to consider before you choose
- Inflation protection (or not)
Basic fixed annuities don't usually rise with inflation. You can add this option - but it'll reduce your initial payments. - What happens when you pass away?
Standard fixed annuities stop when you die, but some can continue to pay a partner or return unused funds. A "joint-life annuity" goes on paying your spouse, while a "guarantee period" means your heirs might still receive payments for a set time.
Summing up
Fixed annuities offer peace of mind by turning your savings into dependable income. They're especially popular for those who prefer simplicity and security in retirement. Just be sure to weigh all your options - and talk to a financial advisor before committing.
Frequently Asked Questions
Is my money locked away once I buy a fixed annuity?
Yes, in most cases, the lump sum you use to buy a fixed annuity is no longer accessible. You're exchanging that amount for a series of guaranteed payments, and you typically can't withdraw or change your mind once the contract is set. It's one of the main reasons people are advised to think carefully before committing to an annuity.
Can I buy a fixed annuity with my pension pot?
Yes, if you have a defined contribution (DC) pension pot, you can use some or all of it to buy a fixed annuity. This often happens when someone reaches retirement age and wants to secure a regular income for life or a set term. You could take up to 25% of your pension pot tax-free, and use the rest to buy the annuity.
What's the difference between a fixed and variable annuity?
A fixed annuity pays you a guaranteed amount at regular intervals - like monthly or annually - for a term you choose or for the rest of your life. The payments don't change, which makes budgeting easier. A variable annuity can fluctuate depending on market conditions or inflation. Some include investment elements, so the returns (and your income) can go up or down.
Are annuity payments subject to income tax?
Yes, annuity payments are treated as income in the UK and taxed according to your personal rate. After taking your 25% tax-free cash (if you choose to), the rest of your annuity income is added to your other earnings for the tax year. It's important to consider the tax implications when deciding how much of your pension to use for an annuity and how it fits with your other retirement income.
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