Financial firms are observing a growing demand for fixed-term annuities, a retirement product designed to provide income for a specific duration. This option offers a guaranteed income for a set period, such as five or 10 years, and an agreed lump sum at the end, allowing individuals to review their financial options later.
Sales of retirement annuities have increased sharply in recent years, with advisers now noting a fresh surge of interest in fixed-term versions. Standard Life and Canada Life have both reported a rise in customer interest and demand for these products.
For example, Standard Life indicated that a 62-year-old with a £100,000 pension pot could currently secure a guaranteed income of about £13,800 a year for five years, alongside a £50,000 lump sum at the end of the term. This income level surpasses the full new state pension of £12,548 annually.
Fixed-term annuities are being used by retirees to bridge the period between stopping work and the start of their state or defined benefit pensions, fund specific commitments like mortgage payments, or stabilise income in early retirement. Changes to inheritance tax treatment of pensions, announced in the 2024 autumn budget, have also contributed to the renewed popularity of annuities.
Despite this, a survey by Legal & General found widespread misconceptions about annuities among UK adults aged 50-plus, with only 35% correctly identifying a lifetime annuity as providing a guaranteed income for life. The insurer states that annuities are generally simple but may not be suitable for everyone, as they typically cannot be changed or cancelled after a cooling-off period.