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A fixed term annuity (also called a fixed term income plan) allows you to buy a retirement income for a set number of years with all or part of your pension pot.
At the end of the specified period you will receive your ‘Guaranteed Maturity Amount’. You can choose to invest in another retirement income product with the maturity amount, or take the money out of your pension.
As you are not tied in for life – in contrast to a lifetime annuity - you retain a certain amount of freedom, but still benefit from the security of knowing how much income you will receive and your ‘guaranteed maturity amount’ at the end of the specified period.
It does however come with risks which you will need to explore before making your choice. If you would like to secure a guaranteed income for life then you may be interested in a lifetime annuity instead.
Fixed term annuities at a glance
You choose the term – often 5 or 10 years - although they are available between 3 and 20 years.
You can usually choose to take the first 25% of your pension pot as tax-free cash.
Guaranteed income is paid for a set number of years.
If you do not require an income then the plan can provide capital growth over the term.
At the end of the term a GMA (Guaranteed Maturity Amount) is paid.
The maturity amount can be used to buy another retirement income product, such as another fixed-term annuity or a lifetime annuity, or you can take money out of your pension.
A range of death benefits can be selected.
How is the Guaranteed Maturity Amount calculated?
The value of the maturity amount is calculated at the start of the plan and is based on the amount of income taken and options selected. Fundamentally the higher the income the lower the maturity amount. This remains part of the pension plan and this means that another retirement option must be selected at the end of the fixed term.