UK retirees who are annuity holders are more likely to report lower levels of stress and the highest level of financial confidence compared to those without one.
This is according to research from Legal and General and the Happiness Research Institute, an independent Danish think tank.
The research also shows the top reason people opt for an annuity (31%) is as a result of a recommendation from a financial adviser.
Retirees with an annuity score more positively across multiple wellbeing measures.
They report greater satisfaction with their current lives, relationships, free time and social activities, with 51% more likely to report lower levels of stress than those without one.
Retirees who are annuity-holders also feel more financially secure, as they are more likely to report the highest level of financial confidence compared to those without one (24% versus 21%).
They were also 40% more likely to consistently afford their credit-card payments or loans compared to those without one.
Still, according to the latest Financial Conduct Authority Retirement Income Market Data, only 10% of pension pots accessed for the first time in 2023/24 were used to purchase an annuity.
Despite this low take-up, advisers play a big part in those who do choose to purchase one.
Over a fifth (23%) of retirees said the draw of receiving regular payments and the assurance of a stable income that lasts a lifetime are key factors in buying an annuity.
Additionally, 16% opted for an annuity to make budgeting easier, while 13% wanted greater control over their finances.
Legal & General Retail Retirement managing director Lorna Shah said: “Too often, conversations around the value of an annuity are limited to rates. However, our findings reveal a clear ‘happiness advantage’ for those with annuities.
“The stability of a guaranteed income gives retirees peace of mind that their money won’t run out, even if they live past 100.
“It takes the guesswork out of budgeting and lets people focus on enjoying retirement, rather than spending time worrying about their finances.
“While the benefits of an annuity can often be overlooked when it comes to retirement planning, it’s important to note they don’t have to be the only solution as they can be part of a blended approach.
“Combining the guaranteed income of an annuity with other sources, such as income from investments or drawdown, can provide even more flexibility, ensuring that essential expenses are covered, while offering the freedom to grow other assets”.
To obtain these results, Legal & General spoke to 3,000 UK retirees.
This should be used to help solve the annuity puzzle
“Why if annuities are so good (and less stressful) don’t more people purchase an annuity?”
Drawdown is clearly more stressful than an annuity!!!!
Why does virtually, possibly absolutely, nobody ever purchase a Purchased Life Annuity?