Bridging the ‘gap years’ in retirement with a guaranteed fixed-term income

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A decade on from the introduction of pensions freedoms, it’s generally accepted that a hard-stop from the world of work – suddenly slamming on the brakes - is more unlikely than ever. Our research found that nearly half (42%) of people expect to make a gradual transition from full time work to being fully retired – shifting down gently through the gears by reducing their hours.*

In fact, these days only 13% of people expect their decision to retire will be related to reaching a specific age. For most people it comes down to affordability and health, as well as being able to enjoy retirement.

And with nearly nine in ten people (85%) expecting to rely on their State Pensions to provide part of the funding for their retirement, how do your clients bridge the income gap between giving up work, or reducing their hours, and getting access to the State Pension currently at age 66?

It’s a question worth answering because our latest research shows that the issue is important for three-quarters (75%) of people over 50.**

Don’t let an income bridge impact financial resilience

Unfortunately, the answer for many people over 50 who plan to step back from work gradually is to start dipping into their savings in one form or another. A third of them opt to make lump sum withdrawals from their pension savings while a similar portion decide to use cash savings. Meanwhile, 16% start to drawdown from their workplace pension to provide that necessary income boost before the State Pension kicks in.

And while cash and drawdown certainly have their merits, there is a risk that taking too much too early could negatively impact your clients’ financial resilience in later life.

Is a guaranteed income enough to guarantee peace of mind?

For many of your clients, the security of receiving a guaranteed income for the rest of their lives could really take the stress out of meeting day-to-day essentials, but this option may not suit everyone – especially in the early years of retirement when clients’ needs can be varied, and their plans for later on in life are perhaps not yet clear.

With more providers entering the market offering fixed-term annuity products with terms as short as three years – these products can provide your clients with a guaranteed income for a fixed term, with the ability to purchase an alternative retirement product at the end of the term. It’s emerging as an exciting and effective way for you to help your clients fund their gradual glide-path into retirement.

The compelling combination of income certainty and term flexibility has proved to be appealing with one in five over-50s (19%) already benefitting from fixed-term annuities or planning to purchase them.

And the popularity of a fixed-term annuity looks set to continue. In the current volatile market conditions, these products offer a good way for over-50s to put in place a guaranteed income before they receive their State Pensions.

This plugs any shortfalls in income during the transitional period leading up to full retirement and can provide a very welcome reassurance.

In response to demand for such strategies, Standard Life has launched the new Guaranteed Fixed-term Income (GFI) product. As the name suggests, it offers your clients the dual benefits of a guaranteed income and the flexibility to choose a term with alternative options available at the end of it.

Clients can select a guaranteed income for anywhere between three and 25 years, with the option to receive a maturity value at the end of the term. The GFI also offers a range of other optional features, such as inflation proofing and death benefits.

“Retirement planning prides itself on avoiding a one-size-fits-all approach in favour of tailored strategies for each individual client. Blended retirement solutions that better match people’s personal needs are growing in popularity. Being able to offer some element of guaranteed income, such as GFI, is a key part of that mix”. Peter Cowell, Head of Annuities, Individual Retirement Solutions

You can find out more about how GFI can help your clients ease into retirement here

*Retirement Voice report 2024.

** Opinium conducted research between 25th July 2024 and 12th August 2024 amongst 2,000 people over the age of 50.