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Fixed Term Annuity

As well as the two options of annuity or income drawdown, a `third way` is evolving, which provides a mixture of benefits from both annuities and drawdown.

This type of plan is commonly known as “Fixed Term Annuity” and is currently offered by 2 providers in the marketplace, Living Time and Liverpool Victoria.

The idea is that you will invest your lump sum into the annuity, receive a guaranteed level of income for a term of your choice (between 3 and 25 years) and then at the end of this time you will receive a 'Guaranteed Maturity Amount' from the plan provider to invest in another annuity or retirement product.

This flexibility is particularly useful because you do not have to permanently commit to options like indexation, a spouses pension or death benefits - the choices you make will only apply for the fixed annuity period and can be changed before entering into the next option you choose.

One further advantage is that, as with income drawdown, you can choose the level of income you will receive from the plan (within the levels imposed by legislation, currently between nil and 100% of GAD). Broadly speaking, if you ask for more income from the plan, the Guaranteed Maturity Amount will reduce. If you ask for less income or even no income, your Guaranteed Maturity Amount will increase.

Although no investment risk applies to this type of plan, it is important to point out that there is a risk that your Guaranteed Maturity Amount may not be sufficient to buy the same level of pension at the end of the plan term. This will depend on annuity rates at that time and, if rates have reduced, the Guaranteed Maturity Amount may only be able to buy a lower level of pension for the future. Conversely, if rates have increased, it is possible that a higher level of pension could be secured.

Because of the possibility of future income changes this option will not suit everyone but we will be happy to advise you on whether this type of plan could fit your requirements.



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