Fixed term annuities: how they work, rates and maturity

Fixed term annuity rates in the UK turn on your age, the term and any lump sum kept for the end. Here is how one works, and the pension tax trap.

Most people asking about fixed term annuity rates want to know what a set run of years would pay, and what happens when it stops. For free, impartial guidance on taking a defined contribution pension, Pension Wise from MoneyHelper is backed by the government. Rather have a person check the sums? Details sent via the form on this page go to an adviser with FCA authorisation, who phones you free of charge.

What a fixed-term annuity is

MoneyHelper describes an annuity as a way to turn some or all of a defined contribution pension into guaranteed taxable income, and a fixed-term annuity as one that pays for a set period, five or ten years being its examples, within an agreed period between 1 and 40 years. Unlike the lifetime kind, it stops on a date written into the contract. What a lifetime annuity involves is covered in what a pension annuity is.

The agreed term is the main thing that sets this product apart. You choose the term, how much of the pot to commit, and whether the income stays level or rises. A level income will usually start higher than a rising one; inflation-linked annuity rates covers the trade.

Pension income from a fixed-term annuity is taxed as income. Tax is usually worked out by the provider from your tax code and taken off before you are paid. Once any cooling-off period has ended you typically cannot change your mind.

The maturity amount: a lump sum at the end of the term

A fixed-term annuity does not have to use up the whole pot. In MoneyHelper's words, you can choose to use your entire pension pot, or take a payment when the annuity ends, called a maturity amount. The amount is agreed when you take the annuity out, and the choice often includes taking a lower annuity income in return for a higher maturity lump sum. That is the lever to understand: money set aside for the end is money not paying income during the term.

The word that matters is agreed: the sum is fixed in the contract on day one. Money left in drawdown has no such figure, because it stays invested and its value moves with the markets. How the two compare is in annuity or drawdown.

What happens when the term ends

When the annuity matures, the payments stop and the maturity amount, if you chose one, is paid. You can spend it in any way you like or use it to give you more retirement income, for example by putting it into pension drawdown or buying another annuity. How the maturity amount is taxed is a point to ask the provider about before you buy, because the answer can affect how much you have left to use.

Buying again is not a repeat of the first purchase. MoneyHelper says a second annuity might pay a higher income because it is priced on an older age and health, though everything turns on the rates available then. Rates may have risen or fallen over the term; where annuity rates are heading looks at what moves them. If you may later want a lifetime income, a fixed term can be a stepping stone, though the later quote is not something anyone can promise today. The best age to buy an annuity covers timing.

If you die before the term ends

MoneyHelper says that if you die before your fixed-term annuity ends, the maturity amount is often paid to your nominated beneficiaries, and adds: "But always check, as death benefits vary between schemes." So ask the provider what its contract pays, to whom, and for how long.

One narrower case has its own tax rule. HMRC's manual (PTM062720) says a short-term annuity, meaning one bought from a drawdown fund, paid by an insurer and running for no more than five years, can be guaranteed to keep paying to the end of the term if the member dies during it, but apart from those guaranteed payments it cannot provide a benefit after the member's death. For any other fixed-term contract, the provider's own terms are the place to look. Money from an annuity set up to pay your beneficiaries will usually be taxed as their income. The full picture is in what happens to an annuity when you die.

The tax trap: a fixed-term annuity and the money purchase annual allowance

HMRC's pension schemes rates table gives the annual allowance for 2026 to 2027 as £60,000. Flexibly accessing a pension in certain ways brings in a lower cap on defined contribution saving, the money purchase annual allowance (MPAA): £10,000 for 2026 to 2027 in the same table. GOV.UK's examples of flexible access include "cash or a short-term annuity from a flexi-access drawdown fund". This matters to anyone still paying into a pension, because the total paid in to a defined contribution scheme by you or anyone else, an employer included, counts.

MoneyHelper's summary is short: buying a fixed-term annuity triggers the MPAA but a lifetime annuity does not. HMRC's manual gives the exact conditions, and they are narrower than that sentence suggests.

• What counts as the annuity. A fixed-term annuity to which you become entitled on or after 6 April 2015 is treated as a short-term annuity if it is bought with some or all of your drawdown pension fund, is payable by an insurance company, and runs for no more than 5 years.
• What sets it off. Under PTM056520, for a flexi-access drawdown fund created by designating funds on or after 6 April 2015 (or converted from an older drawdown fund), the trigger falls immediately before the first payment from the fund. That first payment can be income withdrawal or a payment of a short-term annuity bought with the fund's money, whichever comes first. There is no trigger if the whole fund comes from a disqualifying pension credit.
• How long it lasts. After a trigger event, the MPAA test applies in that tax year and every year after.
• The lifetime annuity exception. The same manual page counts a lifetime annuity as a trigger where entitlement began on or after 6 April 2015 and the contract allows actual or possible decreases in the payments, other than in prescribed circumstances. So the blanket line that a lifetime annuity does not trigger it needs checking against the actual terms.

That summary does not limit the term, and the same guide's range runs to 40 years, while HMRC's definition of a short-term annuity stops at five. For a longer term, ask the provider or an adviser how it will be treated before you sign, since the contract cannot normally be undone. If you have already taken income from a flexi-access drawdown fund, the trigger may have happened then. Contributing to a pension at the moment? Say so in the form on this page, mentioning the fixed term, and an adviser holding FCA authorisation can weigh it against your saving.

What fixed term annuity rates depend on

This page prints no rate table: a fixed-term annuity rate is an offer made on a given day to a given buyer. In MoneyHelper's list, the income turns on the sum converted, the length of the term, whether payments rise each year, and the provider's rate, which reflects age, health, where you plan to live, interest rates and wider market conditions. Setting aside a bigger maturity amount usually means taking a smaller income. Asking about 10 year annuity rates or 5 year annuity rates is therefore a question about a quote on your own details, not a fixed price.

For real figures, MoneyHelper's Compare annuities tool has a separate search for fixed-term annuities. Ask each provider for the same term, income shape and maturity amount, or the quotes will not line up. Our guide to the best annuity rates in the UK covers that tool and reading quotes, annuity income from your pot what moves a lifetime figure, and enhanced annuity rates how health can raise an offer.

Is a fixed-term annuity worth considering?

It is a middle course between drawdown and a lifetime annuity: income that is certain for the term, an end date that you pick, and an agreed sum at the finish if you want one. The trade-offs are the ones in is an annuity worth it, plus three of its own: the income stops, the next purchase happens at rates nobody can predict, and the allowance on later pension saving may fall. Whether that suits you depends on your position, and Pension Wise or an adviser can look at it. If your pot is already in drawdown, GOV.UK lists buying a short-term annuity, with regular payments for up to 5 years, among the choices; pension drawdown covers the others. Be wary of anyone who rushes you: the FCA's pension scams page has the warning signs.

Fixed-term annuity questions people ask

Can I buy an annuity that pays for 10 years?

Yes. Ten years sits well inside the 1 to 40 year range given above. Terms on offer vary by provider, so ask what each one sells.

What happens to an annuity when it matures?

For a fixed-term annuity, the payments stop on the end date and any maturity amount you agreed is paid. A lifetime annuity has no maturity date and pays as long as you live, plus any guarantee period; see what a pension annuity is.

How much does a 10 year annuity pay?

It depends on the pot, your age, rates on the day and how much you leave for a maturity amount, so no single figure applies. MoneyHelper's comparison tool and quotes from providers give figures for your details.

Can I take money out of a fixed-term annuity early?

Annuities are not usually reversible once the cooling-off period has ended; see can I withdraw from my annuity.

Do I need advice to buy one?

Not necessarily. Pension Wise is free, and free annuity advice lists other routes, though MoneyHelper notes that some products may need a broker or financial adviser to reach.

Your next step

A fixed-term annuity trades certainty for a set period against flexibility and a possible lower pension-saving limit. Start with Pension Wise if you have not yet, and compare quotes for the same term and maturity amount. Going through every point above with an FCA-authorised adviser begins at the form on this page, which asks for your number and charges nothing.

Sources (accessed 20 October 2026): MoneyHelper, annuities explained and Compare annuities, read in archived copies; HMRC, Pensions Tax Manual, PTM056510, PTM056520, PTM062400 and PTM062720; HMRC, Pension schemes rates (updated 6 April 2026); GOV.UK, Tax on your private pension: annual allowance; GOV.UK, Personal pensions: how you can take your pension; FCA, Pension scams.