Fixed Term Annuities Explained: Pros and Cons

With various types of pension products available, choosing the right one for you isn’t always easy. If you want the security of receiving regular monthly payments, a pension annuity is a great option to consider. However, not everyone is ready to make a lifelong commitment with their pension pot, which is why fixed term annuities are ideal for those who want to keep their options open.

Below, we explore what fixed term annuities are, as well as the pros and cons to help you decide if they are the right choice for your pension.

What are fixed term annuities and how do they work?

A fixed term annuity, also known as a temporary annuity, is a pension product that offers regular income for however long you choose. Unlike other annuity plans, a fixed term annuity offers the flexibility to change your financial decisions later on in life.

With this plan, you will choose the period of time you would like to receive your money – most pension providers offer plans from around one to 20 years. Once this period is over, you will receive the remaining balance of your pension in a lump sum and have the option to use this however you want, whether that is investing in something for your family or simply moving on to an alternative pension plan.

When choosing a fixed term annuity, you will essentially be paying in a lump sum of money to your provider in return for a regular income which can be set for monthly, quarterly or annual payments. The payments you will receive depend on how much you pay, the provider’s fixed term annuity rates, the length you have chosen among personal factors such as health and age.

Fixed term annuities: the pros

Guaranteed Income

Probably the biggest advantage of a fixed term annuity is that you earn a consistent income for however long you choose. This income does not change depending on stock markets or interest rates which means it gives you peace of mind and financial security.


If you can’t make up your mind on pension products, a fixed term annuity gives you a great temporary option that you can set to suit your lifestyle. For example, you may want to set the plan for a small period of time, such as five years, and then move on to make a big investment once that period is over.

Financial growth

Once your set period is over, you will receive a maturity sum which includes the original amount you paid for, plus any growth that may have accumulated (this obviously does not include the income you received during the fixed period).

Fixed term annuities: the cons

Risk of rate falls

The maturity amount you receive at the end of your fixed term could decrease if rates fall during that time, so your remaining lump sum could be lower than you expected. This also means if you want to then move onto another pension plan, the rates may not be as good as your first time around.

Exit fees

If you want to stop your plan before you have reached your agreed end date, you will have to pay a fee to withdraw the remainder of your finances. This fee does decrease the closer you get to your agreed date.

Lower returns

While the returns in a temporary annuity are guaranteed, they tend to be lower than other types of pension plan which means they may not be that cost effective.

Is a fixed term annuity right for me?

Fixed term annuities aren’t for everyone, so it is important to always weigh up the pros and cons against your specific needs, lifestyles and circumstances. As with any pension plan, there is an element of risk, so it is important to speak to an expert pension advisor who can help you assess your options.

How do I buy a fixed term annuity?

Much like any major investment, you should always shop around different providers to ensure you find the best rate and deal for you. A financial advisor can help you do this by understanding your personal circumstances and matching you with the best insurance provider.

Once you have chosen your annuity, you can apply for it yourself or with your advisor. As always, Almond Financial is always here to help. Book a call with us today if you’d like to discuss your pension annuity options, or read more of our free guides to learn more.