Are guaranteed fixed term annuities one of the most overlooked solutions in retirement planning? Jon Scannell – Head of Annuity Distribution at Standard Life, explains why paraplanners should take a fresh look at a product he says is widely misunderstood.
For a product that combines guaranteed outcomes with ongoing flexibility, guaranteed fixed term annuities remain surprisingly misunderstood.
In addition to being misunderstood, Jon Scannell, Head of Annuity Distribution at Standard Life highlighted: “Fixed term annuities are probably one of the most under-advised product solutions in the market today.”
For paraplanners, that observation should be particularly interesting. As an integral part of the advice process, paraplanners are often responsible for researching and challenging retirement recommendations.
Yet fixed term annuities are frequently overlooked, largely because many professionals assume they behave like traditional annuities, but the reality is very different.
Understanding the proposition
Simply put, guaranteed fixed term annuities provide certainty over a chosen period.
Clients can select a guaranteed income, a guaranteed maturity value at the end of the term, or a combination of both.
The guarantee sits at the centre of the proposition. If a client selects a 10-year term, they know exactly what income will be paid and exactly what maturity value will be available at the end.
Unlike conventional lifetime annuities, fixed term annuities are written under drawdown rules, which makes them significantly more flexible.
Although, that flexibility is often hidden behind the product name.
“It’s that word annuity tagged on to the end of it that’s confusing,” Jon said.
The industry’s terminology arguably works against the product. While the phrase “fixed term annuity” sounds rigid and irreversible, many modern products offer partial withdrawals and, in some cases, full surrender options.
Busting common misconceptions
One of the biggest myths concerns underwriting.
Because the product includes the word annuity, many automatically assume that medical underwriting is required.
Standard Life routinely receives retirement health forms alongside fixed term annuity enquiries – despite the fact they are unnecessary.
There is no medical underwriting, rates are not dependent on health disclosures, and there’s no need to navigate lengthy medical questionnaires.
For paraplanners managing complex cases and multiple deadlines, removing that administrative burden could create significant efficiencies.
Jon recalled instances where advisers had spent hours gathering information that simply was not needed.
“We get retirement health forms through for fixed term annuities all the time,” he said.
“The adviser or paraplanner then realises there was no need to complete the form because there’s no underwriting.”
The misconception extends beyond underwriting. Many professionals assume fixed term annuities lock clients into a decision for the duration of the term.
However, products such as Standard Life’s, allow partial withdrawals and can even be surrendered if circumstances change.
That distinction is important because it challenges one of the main objections often raised against guaranteed products, in a perceived lack of flexibility.
A solution for modern retirement
The appeal of fixed term annuities becomes clearer when viewed through the lens of today’s retirement landscape.
Retirement is no longer a single event. Increasing numbers of clients are reducing working hours gradually, semi-retiring or leaving employment before State Pension age.
Standard Life research found that 45% of people retire at age 60, creating a gap between retirement and other guaranteed income sources becoming available.
This is where fixed term annuities can play a valuable role.
A client might wish to generate a guaranteed income for five or 10 years while retaining options for the future. At the end of the term, they can reassess their circumstances and determine whether an annuity, drawdown or another solution is appropriate.
Jon pointed to examples of individuals using fixed term annuities to support a phased retirement strategy, allowing them to reduce working hours while maintaining income certainty.
Rather than moving directly from full-time employment into retirement, many clients are now transitioning gradually. As a result, retirement solutions must be able to adapt to those changing needs.
Built-in client re-engagement
For paraplanners thinking about ongoing suitability and review processes, perhaps a compelling feature is the built-in review point.
Unlike a lifetime annuity, which locks in a long-term income decision, fixed term annuities create a natural opportunity to revisit the client’s plan.
“I often refer to it as built-in client re-engagement,” Jon said.
Most fixed term annuities are written for three-to-five-year periods. At maturity, advisers can reassess a client’s objectives, spending requirements, health and wider financial situation.
In a world increasingly focused on ongoing advice, this creates a natural opportunity to demonstrate value through periodic planning conversations and updated recommendations.
The challenge for paraplanners
Perhaps the biggest takeaway is the need to challenge assumptions.
Many retirement solutions suffer from misconceptions, but fixed term annuities may be particularly vulnerable because of how closely they are associated with traditional annuities.
That can lead to unnecessary administration, overlooked opportunities and the potential of missed planning discussions.
As retirement becomes increasingly personalised, solutions that can deliver both certainty and flexibility deserve careful consideration.
For paraplanners tasked with evaluating every available option, guaranteed fixed term annuities may represent one of the most overlooked tools in the retirement planning toolkit.
As Jon puts it early on our discussion, “Fixed term annuities are probably one of the most under-advised product solutions in the market today.”
Given the changing nature of retirement, perhaps it is time for more paraplanners to take a fresh look.
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