This is an unsecured pension. It enables you to take a proportion of your fund and purchase an annuity, which gives you an income for up to five years. Meanwhile, the rest of your fund remains invested and exposed to the stock market.
The plus points
Once you have purchased your annuity, for the duration of the annuity’s term, you will know what your income will be. Perfect for people who like some degree of certainty.
The many plus points of short-term annuities are also their drawback. Signing up to a set income for the duration of the annuity, will reduce the overall value of your fund. If investments in your fund under-perform, it could result in a lower income when you finally purchase an annuity.
It is also worth noting that you get much less value for money with a short-term annuity. With lifetime annuities, the people who die sooner than expected subsidise the rates for everyone else. So you get more for your money. With an annuity of five years or fewer, the subsidies are very low, consequently lowering the rates. So, you get much less for your money.
If you’re unsure whether short-term annuities are right for you, call us for advice.