4 annuity myths that could mean you’re missing out on security in retirement

November 10, 2023

Annuities could provide you with income security in retirement. Despite this being a common goal among many thinking about their future, misconceptions may mean retirees are overlooking annuities. 

According to a Standard Life study, almost half of over-50s who are aware of annuities say they don’t know how they work. Read on to discover why an annuity may be an option you want to consider. 

Annuities provide you with a way to create a guaranteed income in retirement

If you have a defined contribution (DC) pension, one of the retirement challenges you may face is understanding how to turn it into an income. An annuity is one option.

You’d use a lump sum, often from your pension, to purchase an annuity. In return, you’ll typically receive a guaranteed income for the rest of your life. You could choose an annuity that would provide an income that increased each year, which may help preserve your spending power. 

When you buy an annuity, your income isn’t affected by stock market volatility, as it may be with other options, and you don’t have to worry about running out of money. So, it could provide peace of mind. 

With 87% of people taking financial advice saying income security in retirement is either “very” or “extremely” important to them, an annuity could be right for some retirees. 

Yet, the Standard Life research indicates that annuity myths could mean some are disregarding the possible benefits. 

1. 48% of people believe annuities offer poor value for money

When you purchase an annuity the rate a provider offers will affect the income you receive.

There’s a misconception that low annuity rates mean that it’s an option that offers poor value for money. However, since the start of 2022, according to Standard Life, annuity rates had improved by 48% by June 2023. 

Calculations made in June 2023 reveal that an average 65-year-old woman purchasing an annuity with £100,000 could receive £158,000 over her lifetime. For men, in the same circumstances, the figure is £142,000.

So, if you’ve dismissed an annuity in the past, it may be worth re-evaluating the income it could provide. 

Of course, it’s impossible to tell how much you’ll receive from an annuity when you first buy it. As well as the annuity rate, your lifespan will have an effect. However, the figures suggest many people opting for an annuity could benefit financially in the long run. 

2. Almost half of people aren’t aware they can combine an annuity with drawdown

One of the reasons you might not want to consider an annuity is that it’s inflexible – you’ll usually receive a defined income each month, which you cannot change to suit your needs.

In contrast, other options allow you to adjust your income. For example, through flexi-access drawdown, you may increase or decrease how much you withdraw from your pension to match your lifestyle. 

When you’re reviewing your pension options, it’s important to note you don’t have to choose just one – you can mix and match them.

So, you could use a portion of your pension to purchase an annuity to provide a secure base income. The rest of your retirement savings could remain in your pension for you to access flexibly when you choose. 

3. 24% of people incorrectly believe annuities must be bought at the point of retirement

Purchasing an annuity isn’t a decision you need to make at the start of retirement either.

During the start of the next chapter of your life, you might benefit from a flexible income. Perhaps you want the opportunity to withdraw lump sums to pay for one-off costs like updating your home or travelling.

In the future, an annuity could be more suitable. Regularly reviewing your retirement plan and income could help ensure it continues to align with your lifestyle, and you might decide to purchase an annuity years after you retire. 

4. 31% believe they need to be healthy to access the best annuity rates

Health issues can negatively affect some financial decisions, so it’s not surprising that 3 in 10 people receiving financial advice believe they must be healthy to access the best annuity rates. Often, the opposite is true. 

If you have a health condition you may be able to purchase an “enhanced annuity”. This considers how health may affect your life expectancy and could pay out a higher regular income as a result. 

Contact us if you’d like to talk about your retirement income

Understanding how to use your pension and other assets in retirement to provide a reliable income can be difficult. Whether you want support finding an annuity that’s right for you, or you’d like to explore other options, we could help.

Please contact us to arrange a meeting to talk about your retirement finances. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

What our clients say

The people we help are at the heart of what we do. Here are some of their testimonials.

I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

Having recently transferred my financial management to Stratton Wealth Management, I have been extremely impressed with the highly professional service I have received. I feel I have been fully involved in all decision making, and the company's highly skilled advisers have shown commitment and patience in any dealings I have had with them. I have also always found them to be easily accessible for any discussion I may require.

Denise Thornton -

A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

Lee and Claire Parkinson -

Clients since 2016

Darius deals with my family’s finances and is a very trusted adviser. We meet a number of times a year, but I know I can call him any time if I have any questions. He is proactive, helpful and friendly!

Jonathan Dennis -

A client since 2019

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

Colin Dunstall, Donaldson Dunstall Solicitors -

A client since 2015