A simple question many people new to the annuity industry want to know are what are fixed annuity rates? Well, they are exactly what they say on tin, an annuity that has a fixed rate. A great many of the annuities bought each year have a fixed rate which is offered at the start of the annuity period. This means that the annual income paid to annuitants who have a fixed rate annuity is the same every year. The insurance company make a calculation on how long you will live and then will offer you a rate for your annuity. The amount the pension provider has to pay out for the entire policy is predictable which allows for peace of mind and security for those who buy this type of annuity.
There is very little risk with this type of annuity (unless the insurer goes bust) which contrasts with alternatives such as variable annuities. Some have described fixed rate annuities as a “conservative” option, in that the absence of any risk means that the annuitant cannot take advantage of possible favourable market conditions (where those on variable annuities schemes may see higher annual income). Although having the same income for the rest of your retirement may allow for better planning, it does mean that your buying power reduces each year and your ‘real terms’ income will decrease each year. If inflation in rampant, you will have even less money to spend.
