How our Fixed Term Annuity works
Our Fixed Term Annuity (FTA) is a capped drawdown plan. It gives your clients a guaranteed income for a term of their choice - from three years up to fifteen years. These terms are subject to both Government limits (even after 6 April 2015) and to them surviving until the end of the term. Our Fixed Term Annuity can only be purchased with funds transferred from another capped drawdown product.
Your client can choose the level of income they need, within Government limits, as well as a range of death benefits. If your client lives until the end of the chosen term, the Plan will return them a Guaranteed Maturity Amount. This amount will be known from outset and is unaffected by investment performance risk during the term, provided it is held to maturity.
The FTA plan has many features:
- Terms of three years to fifteen years up to a maximum maturity age of 90
- Choice of income level at outset within Government Actuaries Department (GAD) limits (even after 6 April 2015)
- Guaranteed Maturity Amount at the end of the term, providing the client survives
- Choice of death benefit options at outset
- The conversion feature, when Plan Protection is selected at outset
What is GAD?
GAD stands for Government Actuaries Department. It is commonly known as, and referred to as GAD. They set the maximum limit on withdrawals from a capped drawdown arrangement, which is why this limit is known as "GAD Maximum".
What are the risks?
As with all financial products, there are some potential risks associated with our FTA.
While the maturity amount is guaranteed, lifetime annuity rates in the future are not. This means future income levels may be higher or lower, compared to a lifetime annuity purchased today.
The Plan is designed to be held until the end of the term. If the conversion feature is exercised, the level of income received from another retirement income product may be higher or lower than the current FTA income.
The level of income is reviewed regularly and may be restricted during the term to ensure it remains within limits set by the Government, even after 6 April 2015.
Your client’s situation may change after their Plan has started, but they cannot change the level of income.
Fixed term annuity rates can go up and down depending on market conditions. If your client’s pension fund(s) arrive after the guarantee expiry date shown on their personal quotation, or the HMRC income limits applicable change, their income and/or Guaranteed Maturity Amount could change.
At the start of the Plan, the client may choose from the following death benefits to help provide financial protection for their spouse, civil partner, dependant or beneficiaries:
- plan protection
- guarantee period
- dependant’s benefit.
Plan protection and guarantee period cannot be selected together. For more information on the death benefits available with our FTA, please read our Key Features Document which can be found in our FTA Literature Library
Your client’s conversion value, where applicable, may be less than the Guaranteed Maturity Amount and the original fund value if the conversion feature is exercised.
Over the years inflation may reduce the real value of your client's income payments and Guaranteed Maturity Amount. They can select escalation which means that their income payments would increase each year. However, the rate of inflation may be higher.