Retirees with a guaranteed income have higher levels of satisfaction and face fewer affordability challenges.
A study by Legal & General and the Happiness Research Institute found retirees who had an annuity scored more positively across multiple wellbeing measures than those that did not.
They also reported greater satisfaction with their current lives, relationships, free time and social activities and were 51 per cent more likely to report lower levels of stress than those without an annuity.
Annuity-holders were also more likely to report the highest level of financial confidence compared to those without one (24 per cent versus 21 per cent).
Even across income levels, those with an annuity were 27 per cent more likely to find their finances predictable and easy to keep track of, according to the study.
When looking at affordability challenges, retirees with annuities were 40 per cent more likely to consistently afford their credit card payments or loans compared to those without one.
Lorna Shah, managing director at Legal & General Retail Retirement 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.”
The study also found when it came to what drove people to choose an annuity, advice played a crucial role.
A recommendation from an adviser was the top reason people opted for an annuity (31 per cent).
The draw of receiving regular payments and the assurance of a stable income that lasts a lifetime were also key factors, with 23 per cent 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.
“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,” Shah added.
alina.khan@ft.com
