Pensions - Articles - The Top Annuity Myths Busted

L&G research reveals more than half of UK adults aged 50 and over associate annuities with financial security, yet nearly one in three (30%) say they are too difficult to understand.

 

The survey of 2,000 UK adults aged 50 and over revealed common misconceptions around when an annuity can be purchased, the income it can provide and the options available to support loved ones after death.

 

To help address these misconceptions around retirement income, L&G has created a new ‘Annuity Myth Busters’ guide, offering clear and practical guidance to help people better understand how annuities work.

 

 

The Myth: “Annuities do not provide a reliable retirement income”

The Reality: A lifetime annuity could give you a guaranteed income for the rest of your life. Only 35% of respondents correctly identified a lifetime annuity as the retirement option that guarantees an income for life. A lifetime annuity can provide an income for the rest of your life, and you do not have to commit your entire pension pot. You can use part of your pot to buy an annuity and keep the rest invested if you want more flexibility.

 

The Myth: “Annuities are too complex to understand”

The Reality: While roughly two-thirds of respondents understood the basics of annuities, 30% felt they are too difficult to understand. Annuities let you exchange some or all of your pension savings for a guaranteed income. You could choose a lifetime annuity, providing a guaranteed income for life, or a fixed-term annuity, paying a guaranteed income for a set period. Once an annuity is up and running, you generally cannot make changes to it, so it is important to choose the right option for you.

 

The Myth: “Annuities are only for retirees”

The Reality: One in five respondents (20%) incorrectly reported that annuities are purely for retirees, or something to consider after retirement. You do not have to wait until retirement to buy an annuity. Some fixed-term plans are available from age 55, potentially helping to ease the transition from working life to retirement or bridge the gap until you start receiving a State Pension.

 

The Myth: “You lose your annuity when you die”

The Reality: Around 17% of respondents believed that any money in an annuity would be lost when they die. However, some annuities allow you to continue supporting a spouse, partner or beneficiary after your death. Features such as guarantee periods and joint-life options can help provide ongoing support, either through a continuing income or a lump sum. These features may affect the starting income you receive.

 

The Myth: “Annuities offer poor value for money”

The Reality: About 21% of the people surveyed said that annuities are expensive. The value you get from an annuity can vary depending on your circumstances, the annuity rates available, the features you select and the retirement options you compare it against. While annuities may not be right for everyone, they can provide financial security and the reassurance of knowing how much income you will receive each month.

 

Mike Batty, Managing Director for Lifetime Mortgages Business & Product & Strategy Director for Retail Retirement at L&G: “People often recognise the value of a guaranteed retirement income, but many are unsure about how annuities work. Misconceptions about flexibility, timing and what happens after death can make an important decision feel even more complicated. The stability of guaranteed income, through products such as an annuity, can lessen anxiety for retirees and create a greater sense of certainty. By separating fact from fiction, we want to give people the confidence to understand their options and build a retirement plan that reflects their individual needs.”