16 May 2014

Fixed Term Annuities - A Good Option for Uncertain Times?

One of the messages I regularly need to get across to people is that buying an annuity is not the only option to create a pension income. I'm glad to say that the Chancellor helped me with this message in the last Budget when the press followed up with "the end of annuities" headlines.

Annuities are not going to end any time soon - they are still the best option in many cases, but it is certainly worth looking at alternatives, one of which is the Fixed Term Annuity (FTA).

The FTA is particularly good in present circumstances with a major change coming to pension in April 2015 (the ability to withdraw all your pension), and with continuing poor annuity rates.

Here's some key points:
  • You could take the tax-free lump sum from your pension, but not take any income
  • You could take a pre-defined income for, perhaps, 5 years and then look at annuities again to see if rates had improved
  • If you have health concerns you might get a better annuity rate in 5 years time
  • Guarantees are available on the value at the end of the fixed term
  • Some investment growth may be possible depending on the product
  • If you die during the term, the death benefits available to beneficiaries are likely to be better than for a standard annuity
In summary, it's about keeping your options open - something which standard annuities don't let you do.
Professional advice is certainly needed when considering these products (you probably couldn't buy one without), but they are an increasingly important option in the difficult process of getting maximum value from pensions.

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