Temporary Annuities

Strictly speaking this type of annuity is classed as a type of Pension Drawdown, even though it is called an annuity. It is designed for the under 75s, and there are a couple of variants.

In a nutshell a Temporary Annuity can provide an income until age 75 (or for as little as three years), and at maturity it provides a known (lower) figure back to you. This money is then used to buy another annuity, or continue with drawdown. It is similar to a drawdown contract in some ways, but has less investment risk, since you know at the outset what your "fund" will be worth.

The advantages:

• It defers annuity purchase
• Provides a guaranteed (temporary) income
• Provides a known return
• If health deteriorates then a future annuity could pay more
• It can be combined with "value protection" to provide lump sum death benefits

This offers some flexibility and removes the investment risk, as you know what the fund will be. You still run the interest rate/annuity rate risk.

Third Way Products

Third way products have been in existence in many parts of the world for many years now, and they have started to be introduced in the UK. Although one provider has now withdrawn from the UK market for the time being due to the economic climate. 

Third way products in many ways works just like a traditional Pension Drawdown contract, you invest your pension with them, take any tax-free cash if required, and the remaining fund provides an income.

They then provide some sort of income guarantees, at a lower level than an annuity or income drawdown. Then provided you do not take more income than the maximum they allow, then they offer some sort of guaranteed income is guaranteed. 

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