Transferring Out to an Annuity

Transfers to Annuities: Lifetime vs Fixed Term

This article provides advisers with a compliance-backed overview of the rules and considerations when clients are transferring pension funds to annuities, specifically focusing on Lifetime Annuities and Fixed Term Annuities.

Lifetime Annuities

A Lifetime Annuity provides a guaranteed income for life and can be purchased using funds from a crystallised drawdown pension. Importantly, this transaction is not considered a pension-to-pension transfer. Instead, the existing pension scheme is purchasing a benefit from an insurer, and the annuity proceeds do not move to another pension scheme.

This distinction allows for partial annuitisation, advisers can help clients use part of their drawdown fund to buy a lifetime annuity, while the remainder stays in drawdown. This flexibility can be useful for clients seeking to secure a base level of income while retaining investment control over the remaining funds.

Key Points:

• Permitted under HMRC rules.
• Not treated as a recognised transfer under Section 169(1D) of the Finance Act 2004.
• Does not trigger drawdown transfer restrictions.
• Can be done in part, allowing the rest of the fund to remain in drawdown.

Fixed Term Annuities

A Fixed Term Annuity (also referred to by HMRC as a short-term annuity) is treated differently. It falls under drawdown pension rules, not annuity rules. This means that any transfer to a fixed term annuity must comply with the drawdown transfer regulations, specifically those outlined in PTM104000 and Regulation 12 of SI 2006/499.

Under these rules:

• A transfer to a fixed term annuity is only recognised if all the assets of the drawdown fund are transferred.
• Partial transfers are not permitted.
• The receiving arrangement must be new and hold no other assets.

This can limit flexibility for clients who wish to annuitise only part of their drawdown fund using a fixed term annuity.

Key Points:

• Treated as a drawdown pension under HMRC rules (PTM062720).
• Must comply with drawdown transfer rules (PTM104000).
• No partial transfers allowed.
• Transfer must be to a new arrangement with no other assets.

Regulatory References

Advisers should be familiar with the following regulatory sources when advising on annuity transfers:

• HMRC Pensions Tax Manual – PTM104000: Transfer of drawdown pensions [gov.uk]
• HMRC Pensions Tax Manual – PTM062720: Short-term annuities [gov.uk]
• Finance Act 2004 – Section 169(1D): Recognised transfers [legislation.gov.uk]
• Regulation 12 – SI 2006/499: Transfer of Sums and Assets [legislation.gov.uk]

Business Owner Details 

Audience: External (adviser) 

Version No: 1.00

Last updated: 24/10/2025 

Next review date: 24/10/2026 

Business Owner Team: SIPP Team

Business Owner Contact: Chris Donald/David Willmot