Expert says fixed-term annuities could go “bonkers”

The market for fixed-term annuities could be set for significant growth over the next few years, according to one retirement income expert.

Speaking to FT Adviser, Canada Life retirement income director Nick Flynn said he expects demand for fixed-term annuities to increase rapidly as more retirees look for guaranteed income while keeping their future options open.

He predicted: “I’m pretty sure [the] fixed-term annuities [market] is going to go bonkers in the next two or three years.”

The comments come at a time when annuities are enjoying a resurgence, helped by higher interest rates and growing demand for certainty in retirement.

Retirees reconsidering annuities

Many retirees embraced income drawdown following the introduction of pension freedoms in 2015, attracted by the flexibility and potential for investment growth.

However, according to Flynn, advisers are increasingly seeing clients who entered drawdown years ago now looking to secure guaranteed income instead.

He said many retirees who have benefited from investment growth are deciding to lock in attractive annuity rates later in retirement.

Flynn said: “We're seeing people who went into drawdown at 65, benefited from market growth, and are now in their 70s, saying: ‘I can lock in 7 or 8 per cent income – and reduce the tax exposure on death – so why wouldn't I?’”

Flynn’s comments also reflect growing concerns about the future tax treatment of pension wealth. Under government plans due to take effect from April 2027, many unused pension funds could become subject to Inheritance Tax when passed on after death. As a result, some retirees may be reconsidering how and when they access their pension savings as part of their wider estate planning.

Recent figures from the Financial Conduct Authority suggest annuity sales continue to grow, rising from 82,061annuities sold in 2023-24 to 88,430 in 2024-25.

Why fixed-term annuities are attracting attention

Unlike a lifetime annuity, which pays an income for the rest of your life, a fixed-term annuity provides a guaranteed income for a set number of years. Many plans also include a guaranteed maturity amount (GMA), which is a lump sum paid at the end of the term. This can be used to buy another retirement income product, move into drawdown or be taken as cash, subject to tax.

Flynn said the market for these products has already grown to around £1 billion and is expected to expand further as more providers come to the market.

Bridging the gap before other retirement income starts

One reason fixed-term annuities are proving popular is their ability to bridge income gaps during retirement.

For example, someone retiring at 60 may need additional income until their State Pension begins. Others may be waiting for a defined benefit pension to start paying.

A fixed-term annuity can provide guaranteed income during this period, helping to cover day-to-day living costs without relying on investment performance.

Keeping your options open

Fixed-term annuities can also appeal to retirees who want certainty today without making an irreversible decision about their long-term retirement income.

Unlike a lifetime annuity, which generally cannot be changed once purchased, a fixed-term annuity gives you an opportunity to reassess your finances when the term ends.

Depending on your circumstances at that time, you could choose to:

• Buy another fixed-term annuity. 

• Purchase a lifetime annuity. 

• Move into income drawdown. 

• Take some or all of the remaining fund as cash, subject to tax. 

This flexibility can be particularly valuable if annuity rates improve in future or your health changes, potentially allowing you to qualify for enhanced annuity rates.

What this means for people approaching retirement

The growing interest in fixed-term annuities is part of a wider shift in retirement planning. Rather than choosing a single solution, many retirees are now combining different options to balance the need for guaranteed income with the flexibility to adjust their plans over time. This can help them meet both short-term needs and longer-term income goals.

For some people, that may mean using drawdown in the early years of retirement before purchasing an annuity later. For others, a fixed-term annuity could provide a useful way to secure income while leaving future decisions open.

As always, the right choice will depend on your individual circumstances, retirement goals and attitude to risk. Taking time to compare your options and understand how different retirement income products work can help you build a retirement income strategy that meets your needs both now and in the years ahead.

Helping you consider your annuity options

Retirement Line’s annuity specialists are here to give you comprehensive information and guidance about your annuity options, including fixed-term annuities. This includes providing you with a comparison of the best annuity rates and income available from the UK’s annuity providers.

For a no-obligation look at your potential annuity income, try our free annuity calculator. If you’d prefer to speak with an Annuity Specialist directly, you can call us on 0800 652 1316 or request a call back - or email us at info@retirementline.co.uk.