Fixed Term Annuities - where best to go

peterg1965

Fixed Term Annuities - I don't need advice, I am looking for an execution only service. I have been using Money Helper calculator to get some figures, I suspect these might be reasonably accurate, but i need to go to individual providers to get accurate quotes (where they deal direct with individuals), or go through a broker.

I assume (i could be wrong) that online annuity brokers, or IFAs, will do a no cost execution on obtaining quotes and concluding the annuity purchase, as the commission should pay their bills.

Does anyone have experience of any of the online brokers with fixed term annuity purchase? (eg Age Partnership) Which of the main 6/7 providers deal direct with individuals, and does this generally mean a more favourable quote or not?

Thanks.

DRS1

I assume (i could be wrong) that online annuity brokers, or IFAs, will do a no cost execution on obtaining quotes and concluding the annuity purchase, as the commission should pay their bills.

An online broker (such as Hargreaves Lansdown or Retirement Line) will not charge you a fee but will collect commission for sorting out an annuity for you. I don't know about Age Partnership but I guess they work the same way.

An IFA is more likely to charge you a fee. But I think @dunstonh will tell you that the IFA would be able to get a quote on a commission free basis which should give a higher annuity rate. The comparison you would need to make is between the fee and the IFA's annuity and the annuity provided by the broker. If you just compared the fee with the commission you would be ignoring whatever extra value the IFA can add with a better annuity rate (if any).

The tricky thing may be finding an IFA who will do it without wanting to do an in depth review of your entire finances.

You might think that going direct will save you commission but I don't think that happens. Certainly on a direct annuity I bought in 2025 there was a disclosure about the "commission" so I assume that was knocked off the pension pot before the annuity was bought.

I don't know who will deal direct with you - Canada Life has been mentioned. If you use an online annuity quote tool that may give you a link to the relevant insurer which could be useful.

peterg1965

Thanks @DRS1

There are a couple of recent threads now discussing annuities but not many touch on fixed term. I assume the quoted prices vary along similar lines to lifetime annuities? @dunstonh is there 'live' pricing for fixed term annuities as well, and would I benefit from using an IFA as opposed to going direct or using a 3rd party broker like Age Partnership etc?

mrklaw

do you have to have your DC pot transferred into the relevant provider in order to do that? as otherwise you’re pulling a lot of money out of your DC to pay for it

QrizB

do you have to have your DC pot transferred into the relevant provider in order to do that?

AIUI from reading threads on here, you would typically make a partial transfer to fund the annuity purchase. If it's uncrystallised, the annuity provider will pay you whatever TFLS you're due.

dunstonh

 @dunstonh is there 'live' pricing for fixed term annuities as well, and would I benefit from using an IFA as opposed to going direct or using a 3rd party broker like Age Partnership etc?

There's less movement on fixed-term annuities compared to lifetime annuities. Just is one of those that does, but Canada Life doesn't.

Third-party brokers and IFAs use the same systems to get their quotes. The key difference is that advisors cannot take commission. They operate on a fee basis, whereas third-party brokers use commission. Some of these third-party brokers are actually offshoots or trading styles of IFAs.

Broadly speaking, many of the online quote sites that are non-advised take a percentage commission. That means that smaller pots are often best placed through them, but larger pots are often based through IFAs. This is because most IFAs will have a tiered charging structure or a cap and a collar. So if your fund was big enough to hit the fee cap of the IFA or a lower tier than the commission taken by the online broker, then the IFA would come in better.

Broadly speaking, if the commission amount is similar to the fee, then the annuity rate will be similar.

e.g:

commission = 2% with no cap. £300,000 fund = £6,000 commission

fee = 2% with a £5,000 cap. £300,000 fund = £5,000 fee.

So in that scenario, you would expect the IFA to come in with the better annuity rate because there's £1,000 less being paid. (and vice versa if it was the other way around).

Some fixed-term annuity products are not available to online brokers. For example, those annuities that can be purchased on an investment platform. That's a more niche option, but it can prove to be quite tax efficient in certain scenarios. Platform-based fixed-term annuities pays the income to the platform cash within the wrapper. Any income needed is then drawn from platform cash. It allows you to take out a fixed-term annuity with guarantees, but still gives you flexibility to adjust the income if you do not need as much income as has been generated. You can reinvest the excess. Some people are using fixed-term annuities to replace the bonds portion of their portfolio.

mrklaw

can fixed term annuities beat a self-rolled gilt/linker ladder? for shorter fix periods ilke a bridge they aren’t that tricky to set up and can be done inside an existing SIPP

was playing with this this morning for my wife’s SIPP. 16760 per year for 8 years rising 3% per year (to cover estimated inflation) would cost £122k in a gilt ladder. That would provide 16760 gross and net using personal allowance.

120k in L&G annuity calculator (its just handy but won’t represent the market fully) - assumes 30k tfc and 90k for the annuity and pays out £13145 per year for 8 years with income guarantee for the full term. That’d be taxable but only a tad. Add back in the 30k tfc across the 8 years you get £16895 so after a bit of tax probably on par with the ladder

If I have the funds now but won’t need it for a few years, the cost goes down - £113k to buy the same ladder today and pay out starting in 2029 (our plan). and that might have utility - you can’t buy an annuity that starts in the future so you’re bound by rates at the time of triggering it.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82117793#Comment_82117793

One difference between fixed term annuities and lifetime ones is that you can have a guaranteed maturity amount with the fixed term annuity. When Retirement Line sent me some fixed term annuity quotes (along with the lifetime annuity quotes I had asked for) my first reaction was HOW MUCH. But then I found that quote was for a 5 year term with nothing left at the end of the 5 years. A couple of quotes later was one for a 5 year term where a lot of the pot was left as a guaranteed maturity amount and the annuity was a lot closer to the lifetime annuity rates.

I suspect most people look at a fixed term annuity because they have a particular period they want to cover and are not looking at having anything left at the end. And they are probably not spending their entire pension pot on the annuity so having something left at the end is covered by what they have left in the pension pot rather than what the FTA generates.

I recall at least one thread on here where someone bought a fixed term annuity but I don't recall that going into details about the different quotes - it was more along the lines of using an IFA or a broker. They used Retirement Line in the end but more because a suitable IFA was hard to find or slow to come back to them than for financial reasons.

I know I go on about Retirement Line but that does not mean I prefer them to Age Partnership. It just so happens that is the outfit I used and coincidentally the outfit the other poster used. No recommendation is intended.

mrklaw

those lump sum maturity ones confuse me. Why are you putting eg 100k into an annuity to get 25k back? or its like really low income and almost all of your original amount back? is it to keep rolling annuities like a rolling gilt ladder? Surely if you dont’ want as much income just spend less of your pension and leave the rest invested?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82118251#Comment_82118251

I don't know. They could be aimed at someone like me who has no confidence that they could generate an investment return from their pension pot. But that is why I picked lifetime annuities over drawdown.

For what it is worth the quote with a guaranteed maturity amount did have a higher annuity than the lifetime annuity. And if you take the five years worth of annuity payments as £X then the remaining amount after 5 years was the starting pot minus about 50% or 60% of £X. So you still have quite a bit left.

A big risk of course is what happens to annuity rates in those 5 years. I suppose if you had done it 5 years ago you would be laughing right now.

dunstonh

those lump sum maturity ones confuse me. Why are you putting eg 100k into an annuity to get 25k back?

Many people have an income need for a defined period and then a different income need for a period, and maybe even another one. So they set their income to the target level, and with the residual funds, they put it towards the next one, and so on.

Surely if you dont’ want as much income just spend less of your pension and leave the rest invested?

But that doesn't give you the capital security that a fixed-term annuity would give. Not everyone has the risk profile to remain invested in retirement.