Pension pick offering a 9% return that could be worth thousands

Millions approaching retirement could be missing out on a simple way to bag a guaranteed 9% return on their pension - without gambling on the stock market or tying up their savings forever.

Financial advisers say 'fixed-term' annuities are quietly offering some of the best deals in years - in some cases paying more than the stock market - yet few over-55s even know they exist.

Unlike the traditional 'lifetime' annuity - where you swap your pension pot for a fixed income until you die, and the fund is gone - the fixed-term version runs for five to ten years, then hands you back a lump sum.

If you die before the term ends, the remaining money usually goes to your chosen beneficiary.

In one example, a saver putting £100,000 into a five-year fixed-term annuity could get a 9% annual income and still receive £77,690 at the end - compared with just 7.75% on a lifetime deal.

Justin Wysocki, of pensions advice specialist Pense, told thisismoney.co.uk: 'It offers a middle ground between full drawdown and a lifetime annuity.

"Fixed-term annuities are ideal for clients who don't want investment risk, want to access their tax-free lump sum, but aren't ready to draw income, or want control, certainty, and built-in flexibility for changing circumstances."

The return of annuities has been fuelled by higher interest rates, which have lifted payouts from rock-bottom levels after the financial crisis. Back in 2015, £100,000 would have bought a £5,500 annual income. Today, it can secure £7,800.

But many savers remain wary of locking in for life - fearing they might die early and lose out, or be stuck with low payments if inflation takes off.

The fixed-term option avoids that trap. You can choose higher income with no lump sum at the end, a smaller income plus a guaranteed payout, or simply a lump sum after the term with no income at all. You can also take the usual 25 per cent tax-free lump sum up front.

William Burrows, of the Annuity Project, crunched the numbers. He said a 60-year-old could use £100,000 to buy a lifetime annuity paying £7,600 a year. Or they could take the same £7,600 annually from a five-year fixed-term deal and still get £85,000 back at the end - a total of £123,000 over the term.

He said: 'Fixed-term providers invest the purchase money into assets such as long dated gilts such as UK government debt, corporate bonds, sovereign debt and commercial property. The yields on these assets are used to calculate the underlying interest rates and returns.'

Providers include Canada Life, Legal & General, LV and Standard Life.

Nick Flynn, of Canada Life, said: 'Many customers are relatively unaware of fixed-term annuities. We typically see customers purchasing five or ten-year fixed-term annuities but longer time frames are available too.'

Experts warn to check all terms carefully - especially what happens on death, and whether your spouse will get continued payments.