How fixed term products can give clients financial stability in retirement

As the average life expectancy continues to rise, clients are faced with the challenge of making sure they have financial stability throughout retirement. So, they’ll be looking for their adviser to create an income strategy that balances security with flexibility, against their specific lifestyle goals. Fixed term products are ideal for this, especially when you consider economic uncertainty, regulatory developments and evolving client expectations.

What are fixed term products?

Fixed term products offer a guaranteed income over a specified period, usually ranging from 5 to 20 years. Unlike lifetime products, which provide income for life, fixed term products offer income for a set time, after which some of the capital may be returned and this will depend on the option they have selected. It can make them ideal for clients who want more options in later life. There are many benefits to fixed term products, including:

• Income certainty in early retirement - Many clients have a gap between retirement and the age at which they can access state pensions or other long-term income sources. Fixed term products can bridge this gap by providing a reliable income during the early years of retirement.

• Flexibility and control - Fixed term products have more flexibility than lifetime products. Clients can choose the term that aligns with their financial goals and lifestyle. Then, at the end of the term, they have the option to take a fresh look at their financial situation and make any changes. That could be purchasing a lifetime annuity, reinvesting or drawing down capital.

• Capital preservation - Some fixed term products return the original capital at the end of the term, which could make them a good option for clients who might want to make sure they can help to cover some of their care costs in the future or maybe leave some money to loved ones.

• Longevity risk management - While lifetime products address longevity risk directly, fixed terms can be used as part of a layered retirement strategy. For example, your client might use fixed term products to cover their income until they’re 80, then switch to a lifetime annuity when rates are higher or when longevity becomes a more pressing concern. If a client’s health worsens during the term, a higher income may be available through an enhanced lifetime annuity.

• Market risk management - Fixed term products often come with guaranteed returns, shielding retirees from market volatility. This is particularly important for those who are risk-averse or who can’t afford to see their retirement savings go down in value.

Given the complexity of retirement planning, it’s very important to recommend that your clients get professional financial advice. A financial adviser can help clients understand how fixed term products fit into their broader retirement strategy, while also looking at tax implications, inflation and personal circumstances.

Three things to think about when recommending fixed term products

• Blended strategies - Combining fixed term products with growth assets allows for a layered income approach, aligning with your client’s risk profile and income needs.
• Tax planning - You’ll need to look at the tax treatment of withdrawals, especially considering potential pension reforms and estate planning implications.
• Client suitability - They’re not for everyone but they can be a great option for clients who want some income certainty and aren’t ready to commit to a lifetime annuity. 

By providing predictable income and flexibility, fixed term products help clients navigate the uncertainties of retirement with greater confidence. As part of a diversified strategy, fixed term products can play an important role in providing financial security in retirement.