Fixed termed annuities are growing in popularity, and the market is growing fast with four and a half thousand financial advisors using them. But are they a good investment for savers and how do they compare with alternatives such as drawdown and enhanced life annuities?

Have a look at our annuity calculator to find the best annuities rates for you.

Pensions Technical Manger at MGM Advantage, Andrew Tulley is sceptical about investing in fixed term annuities. He feels there are several reasons why drawdown or level annuities may actually be a better deal right now.

“If you put off an annuity for 10 years… you are hoping they are not going to be lower”

He says, “If you put off an annuity for 10 years, then you are hoping they are not going to be lower, but factors such as Solvency II could mean they are, perhaps by as much as 10%,’ he says. ‘If it is inflation you are worried about, then investment returns from drawdown could be used to beat it. However, many fixed-term contracts are very cautious and provide a low level of investment growth plus a guarantee”.

He adds, “‘Yet another problem is you can’t get out until a fixed date. With drawdown you can step out and buy an annuity at any time. Losing that flexibility is the biggest issue”.

Enhanced annuity specialists, Just Retirement have recently brought out a fixed term annuity which links with enhanced annuity rates. If a client with a fixed annuity discovers they have health issues which make them eligible for an enhanced rate, they can leave the annuity they have and switch to a lifetime annuity instead.

Have a look at our annuity comparison table below to see which annuity might be best for you.

“Many reasons why a client might buy a fixed term annuity”

Steve Rowe, Marketing Director at Just Retirement says, “There are many reasons why a client might buy a fixed term annuity. Their income needs may change, or they might not need to extract maximum income from their pension fund on day one and want to take their annuity in chunks”.

There are thousands of health and lifestyle factors which could qualify an investor for an enhanced annuity, and Lowe says that, “The adviser will say: ‘You are currently in good health and have such and such pension money. If you put it into a standard lifetime annuity immediately, you would be getting this rate for the rest of your life and it would leave you on the lower end of the income scale. Or you can just press the reset button in eight years’ time if you need to’”.

If you are concerned about annuity, and don’t know where to start, simply fill in an annuity enquiry form to speak to an independent financial advisor, who will be happy to answer any questions you may have.

Fixed term annuities are aimed at the more cautious investor, but advisers should consider whether sensible drawdown investments might produce better returns and offer more flexibility.

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