Retirees with an annuity are happier than those without this guaranteed income stream, according to a new report.
Legal & General found that annuity holders were less stressed, more financially confident and enjoyed greater ‘life satisfaction’ than those who cashed in their pension or moved into drawdown.
The research was conducted among 3,000 UK retirees by the Happiness Research Institute, an independent Danish think tank focusing on wellbeing, happiness and quality of life.
The study looked at the connection between financial security and wellbeing in retirement, and the link between annuities and happiness.
It found retirees with an annuity score more positively across multiple wellbeing measures than those that don’t. They report greater satisfaction with their current lives, relationships, free time and social activities. They are also 51 per cent more likely to report lower levels of stress than those without one.
These advantages persisted even when the data was controlled across income levels, with those with an annuity 27 per cent more likely to find their finances predictable and easy to keep track of.
When examining reported affordability challenges, they were also 40 per cent more likely to consistently afford their credit card payments or loans compared to those without one.
Despite these benefits, L&G points out that many retirees overlook annuities as a financial tool with the latest FCA Retirement Income Market Data showing that, despite a recent increase in annuity sales, only 10 per cent of pension pots accessed for the first time in 2023/24 were used to purchase an annuity.
The study also shoed that advice is a key factor when it comes to buying an annuity. A recommendation from a financial adviser is the top reason people opt for an annuity (31 per cent) —underlining the importance of advice and guidance in the retirement planning process.
The advantage of having regular payments and the assurance of a stable income that lasts a lifetime are also key factors — with 23 per cent of respondents saying these benefits were important. Additionally, 16 per cent opted for an annuity to make budgeting easier, while 13 per cent wanted greater control over their finances.
Retirees are also looking to use annuities as part of a blended retirement, understanding the importance of choosing retirement products that are right for each individual’s circumstances.
Legal & General managing director, Retail Retirement Lorna Shah, says: “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.”
