Also known as Third Way Annuities, they match a Guaranteed Annuity with a Flexible Drawdown. They have many of the same benefits of drawdown without the investment risk. Income is usually set from the outset over say a 5 – 10 year or longer period, and you are given a guaranteed amount at the end of the plan term, so that you can calculate the investment return from day one.
Temporary Annuities have become very popular in the industry, because the retirement options of a conventional annuity and a drawdown plan do not necessarily cover every retiree. Many people are put off by the words ‘investment risk’ when looking at drawdown. Also, the fact that you could die early, and all of your pension income be lost to the annuity company, can discourage people from choosing a conventional annuity.
A Temporary Annuity will allow a client to go for a minimal risk based product, with a guarantee on both income and lump sum payment on maturity. The key to the most popular temporary products is the GUARANTEE; you know what you will be getting as an income and as a lump sum.
- Guaranteed income. You know your income from day one until the day you die or the plan ends.
- You may be entitled to enhanced rates, meaning that your pension income will be higher.
- Simple product.
- Not exposed to any investment risk.
- Same death benefits as drawdown, i.e. can be cashed in by your estate for a 55% tax charge or passed on to your spouse, depending on the options taken within the plan.
- If you begin to take medication later in life, you may well be entitled to an enhanced rate when the plan matures.
- If you have a plan for 10 years you may not be able to buy the same income from an annuity at that time as you can now. You may, of course, be able to buy more, depending on interest rates.
- If you take a high income it can reduce your fund considerably.
- You are only entitled to take an income based on the Government Actuary Department rates.
- Returns may not be as good as a drawdown plan.