Temporary Annuities | Money Saving Advisors
Find out about short-term annuities that pay an income for a set number of years, not for life.
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Income without a lifelong commitment
Not quite ready to commit your pension savings to a lifetime solution? A temporary annuity offers steady income for a set number of years - great for filling a short-term gap. Whether you're semi-retired or waiting for another pension to start, it gives you structure without locking you in forever.
What is a temporary annuity?
A temporary annuity is a retirement product that pays you a guaranteed, regular income for a fixed period - say between 1 and 20 years. It's a bit like a lifetime annuity, but with an end date. Once the term finishes, the income payments stop. You can use a portion of your pension pot to buy one, perhaps while keeping the rest invested.
This can be useful if you need reliable income until another source - like your state pension, a defined benefit scheme, or other income - kicks in. It's flexible, simple, and you don't have to commit all your retirement savings up front.
Creating short-term certainty
If you've retired early or have a break in income, a temporary annuity can be a great way to smooth out your finances.
- The pre-pension gap: If you've stopped working but your state pension hasn't started, you could use a temporary annuity to cover those years with guaranteed income.
- Delaying drawdown: You might prefer to leave most of your pension fund invested and growing, while using a smaller portion to pay for the short term.
- Testing retirement: Want to "trial" retirement for a few years before fully committing? A fixed-term annuity gives you predictable income while you figure things out.
- Managing expenses: Need help with mortgage payments or family support for a while? A temporary annuity offers a practical, predictable way to handle it.
Summing up
Temporary annuities give you reliable income for a set period without tying up all your retirement savings. They're a smart option for flexible planners, early retirees, or anyone with short-term financial needs. If you value control and a bit of structure before making bigger decisions, it's worth considering.
Frequently Asked Questions
Do I lose access to my pension pot?
Not entirely. One of the biggest benefits of a temporary annuity is that you only use part of your pot to buy in. At the end of the term, if your contract includes a maturity value, you'll get a lump sum payment that you can use however you wish - to buy another annuity, move into drawdown, or even take as cash. So, while you commit part of your pension to the annuity, you keep control of your wider plan.
What are the tax rules for temporary annuities?
As with other forms of retirement income, you may have to pay tax on your temporary annuity income. After taking up to 25% of the annuity as a tax-free lump sum, the regular payments you get will be subject to income tax under the PAYE (Pay As You Earn) system. How much tax you pay depends on your total income across the year.
What happens when the fixed term ends?
Once the term ends, your annuity payments stop. Depending on the type of product you bought, there may be further options available at this point. Many temporary annuities come with a guaranteed maturity value - a lump sum paid to you at the end of the term. Depending on your goals, this could be used to buy a lifetime annuity, invest in drawdown, or fund a new plan for your money.
Is a temporary annuity better than drawdown?
It depends on your personal circumstances. A temporary annuity gives you a guaranteed, fixed income for a specific period, regardless of how the markets perform. It's a great option if you want peace of mind and predictable cash flow. On the other hand, drawdown offers more flexibility and the chance to grow your pot, but it also carries investment risk. Many people choose to combine the two for balance.
How are temporary annuity payments worked out?
They're typically based on the fund value or lump sum you invest when you buy them. Insurers use this amount as the starting point and then apply various factors to decide the payout - such as payment period, interest rates, and sometimes personal factors like medical history and any reduced life expectancy. If health issues are found, this can lead to higher payments to match a shorter timeline.
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