TL;DR: A fixed-term annuity is an insurance product that pays a guaranteed income for a defined number of years (often five, ten or fifteen) and then returns a guaranteed maturity amount. The maturity amount can be used to buy another annuity, move into drawdown, or take cash subject to tax. Fixed-term annuities sit between a lifetime annuity (income for life) and pension drawdown (capital invested with no guarantees), giving a degree of certainty without committing to a single rate for life. The income, the maturity sum and any death benefits are all set out at outset. Like all annuities, a fixed-term annuity is irrevocable once bought, although a 30-day cancellation cooling-off period applies.
Last reviewed May 2026
A fixed-term annuity (sometimes called a temporary annuity, fixed-term retirement plan, or fixed-term income plan) is one of the income options available to someone with a defined contribution pension. It pays a guaranteed regular income for a chosen term (typically between three and twenty-five years) and a guaranteed lump sum at the end of that term, called the maturity value or guaranteed maturity amount.
The product was developed to fit the gap between two extremes that otherwise dominate the income-in-retirement market. A lifetime annuity gives certainty of income for life but locks in the rate at the date of purchase, with no flexibility. Pension drawdown keeps the capital invested in the saver's name and offers full flexibility, but with no income guarantee and full investment risk on the saver. A fixed-term annuity offers shorter-term certainty without committing to a single rate forever.
This guide explains how a fixed-term annuity works, what it pays, what happens at maturity, the death benefits, and the situations where it does and does not make sense.
How a fixed-term annuity is structured
At outset, the saver hands over a capital sum (typically funded from a defined contribution pension pot) to an insurance company. The insurer agrees to pay a guaranteed income at a specified frequency (monthly, quarterly or annually) for the term, and to return a guaranteed maturity amount at the end of the term. Both figures are set out in writing in the policy schedule.
The income can be set as flat (the same amount throughout), as escalating with a fixed annual increase (such as 3 percent), or as linked to inflation (RPI or CPI, sometimes capped). The maturity value is also fixed at outset; some plans offer a "minimum guaranteed maturity value" with the possibility of a higher figure depending on investment performance, although the most common product is a fully guaranteed amount.
The plan can include or exclude death benefits, can be set up on a single life or a joint life basis, and can include guaranteed payment periods. Each option affects the income and maturity figures: more comprehensive guarantees mean a lower starting income or a lower maturity value.
What happens at the end of the term
The maturity value at the end of the term is the saver's pension capital again. It can be used in any of the ways open to a defined contribution pension at that age: it can be used to buy another annuity (lifetime or fixed-term), moved into pension drawdown, or taken as cash subject to income tax (with the available portion of the lump sum allowance applying to any tax-free element).
The principal advantage of the fixed-term approach is the optionality at maturity. Annuity rates are heavily influenced by gilt yields and the saver's age. A saver who buys a fixed-term annuity at 60 and receives a maturity sum at 70 will be older and may benefit from higher annuity rates available at that age. They may also have a clearer picture of their health by then, which can open access to enhanced annuities at higher rates.
The trade-off is that the maturity value is fixed in nominal terms. Rising inflation between purchase and maturity will erode its real value. The income paid during the term can be set to escalate, but the maturity sum itself is generally a fixed amount expressed at outset.
Death benefits and joint-life options
Most fixed-term annuities can be set up to pay benefits to a partner or beneficiary if the saver dies during the term. The standard options are: full continuation of the income to a partner (joint-life), continuation at a reduced percentage (commonly 50 percent or 67 percent), payment of the remaining instalments and the maturity value to the beneficiary or estate (a "value protection" or "money-back" feature), or a guaranteed payment period (the income continues for, say, the first ten years even if the saver dies earlier).
Where the death of the original annuitant occurs before age 75, lump sum death benefits and continuing income paid to a beneficiary are normally tax-free, subject to the lump sum and death benefit allowance. Where death occurs after age 75, the recipient is normally taxed at their marginal income tax rate on income received and on any lump sum.
The death benefit options are written into the policy at outset. They cannot generally be changed afterwards. Anyone considering a fixed-term annuity should think about who they want to provide for and ensure the policy reflects that.
Comparing fixed-term annuities with the alternatives
The natural comparators are lifetime annuities and pension drawdown. A lifetime annuity gives an income guaranteed for life, with no maturity value. The starting rate is locked in. The trade-off is loss of flexibility and complete loss of capital from the saver's perspective, in exchange for the certainty.
Drawdown keeps the capital invested in the saver's name. Income can be drawn flexibly, or none at all. The saver bears investment risk; if the investments fall, the income or the future capital can fall too. Drawdown is normally the most flexible option but offers no guaranteed income.
A fixed-term annuity sits in between. Income is guaranteed for the term. The maturity value gives back a known capital sum at the end, providing a "decision date" rather than a permanent commitment. Some savers use fixed-term annuities to bridge from early retirement to State Pension age, or to lock in income for a defined period during which other arrangements (sale of a property, an inheritance, a final drawdown of an investment portfolio) are expected to mature.
What affects the income and maturity figures
The headline rate offered by an insurer depends on several factors. The longer the term, the lower the income for a given maturity value (because the insurer is providing a longer income stream). A higher maturity value reduces the income for a given purchase price. Inflation linking and escalation reduce the starting income. Joint-life options and value protection reduce the income or the maturity value.
The saver's age is relevant: an older saver receives a higher income for a given purchase price, because the insurer's expected liability period is shorter. Health and lifestyle factors can produce enhanced rates from some insurers, particularly for fixed-term annuities of medium to long duration. The Money Helper annuity comparator and FCA's published data can be used as a starting point for shopping around; the open market option means a saver does not have to take the rate offered by their existing pension provider.
Insurance company financial strength matters because the guarantees depend on it. UK insurers are regulated by the Prudential Regulation Authority and supervised by the FCA for conduct. The Financial Services Compensation Scheme covers 100 percent of an annuity (with no upper limit) issued by an authorised UK insurer that fails, although in practice the insurance regulatory framework is designed to make failure rare.
Cancellation and irrevocability
An annuity, once bought, is generally irrevocable. The contract cannot be cashed in, transferred or surrendered after the cooling-off period. The cooling-off period is normally 30 days for an annuity bought from an insurer, during which the policy can be cancelled and the funds returned to the original pension scheme.
The irrevocability is part of what allows insurers to provide guaranteed income. It also means the decision should not be taken lightly. Anyone considering a fixed-term annuity, particularly with a long term, should compare quotes from several providers, take regulated advice for material amounts, and use the free Pension Wise service for over-50s with defined contribution pensions.
Once the cooling-off period expires, the only escape route from a fixed-term annuity is the natural one: waiting for the term to end and taking the maturity value. There is no equivalent of the secondary annuity market for resale.
Disclaimer: This article is general information about fixed-term annuities. It is not personal financial, pension or tax advice. Annuities are long-term, generally irrevocable contracts, and the right product (or whether an annuity is the right answer at all) depends on individual circumstances including age, health, other income, dependants and attitude to risk. Anyone considering an annuity should compare the open market, take regulated independent financial advice, and use the free Pension Wise service.
Frequently asked questions
What is the difference between a fixed-term annuity and a lifetime annuity?
A lifetime annuity pays a guaranteed income for the rest of the saver's life and ends on death (subject to any joint-life or guarantee period options). A fixed-term annuity pays a guaranteed income for a chosen term and returns a guaranteed maturity value at the end, which can be used to buy another product or moved into drawdown.
Can I change my mind after buying a fixed-term annuity?
The cooling-off period is normally 30 days, during which the policy can be cancelled and the funds returned. After that, the contract is generally irrevocable and cannot be cashed in or transferred. The next decision point is at the maturity date.
What happens at the end of the term?
The insurer pays the guaranteed maturity value. The saver can then use it to buy another annuity (fixed-term or lifetime), move it into pension drawdown, take some or all as cash subject to income tax, or any combination. The maturity value is treated as defined contribution pension capital.
Are fixed-term annuities better than drawdown?
Neither is universally better. A fixed-term annuity gives income certainty for the term and a guaranteed capital sum at maturity, but no investment growth potential and limited flexibility. Drawdown keeps the capital invested with full flexibility but no income guarantee and full investment risk on the saver. The right choice depends on the saver's circumstances, attitude to risk and need for certainty.
Are death benefits available on a fixed-term annuity?
Yes. Most plans can include joint-life income, value protection (a return of remaining instalments and maturity value), or a guaranteed payment period. The options are chosen at outset and affect the income and maturity figures. Tax treatment of death benefits depends on the saver's age at death.
How we verified this
The structure of fixed-term annuities, the maturity value and the death benefit options reflect standard product features as described in FCA guidance on retirement income products and provider product literature available through the open market. The tax treatment of death benefits before and after age 75 reflects current HMRC pensions tax guidance under the Lump Sum and Death Benefit Allowance regime introduced from 6 April 2024. The cooling-off period and the role of the Financial Services Compensation Scheme reflect FCA Handbook rules and the FSCS published cover position. Pension Wise and MoneyHelper provide the free guidance referenced. Specific product terms vary by insurer and should be reviewed in the relevant policy schedule.
