Marvin OnumonuUnderstanding of annuities among over-50s improved by 25% over the last year, but many still have common misconceptions, according to research from Standard Life.
Research revealed that the number of people correctly identifying that lifetime annuities provide a guaranteed income for life rose from 39% in 2023 to 49%.
Sales of annuities increased by 34% in the same period, according to ABI data.
Almost all respondents, 95%, said income certainty and security are important when looking at their pension pots.
However, 48% said they are unfamiliar with how lifetime annuities work or how they compare to other types.
When asked a series of true or false questions about annuities, 53% answered ‘don’t know’. Only 30% knew that annuities can cover a surviving partner’s life.
Similarly, just 30% were aware an annuity can be bought while remaining in drawdown.
Some of the main misconceptions included the belief that an annuity lets savers pass on their entire pot to loved ones.
Standard Life noted that 30% identified that annuities can be set up to support a surviving partner, and options like value protection and guaranteed periods can help beneficiaries.
Only 30% were aware annuities could be combined with other retirement products, and only 31% knew an annuity can be bought at any point in retirement.
The report also found people could protect against inflation by buying specific annuity options, and that those with health conditions often get a better rate, though only 18% knew this.
Pete Cowell, head of annuities at Standard Life, said: “It’s really encouraging to see a significant increase in awareness around the role a guaranteed income can play in retirement.
“Most people say they want some form of certainty with their retirement income, and annuities do just that.
“This increasing awareness is clear to see in the recent ABI annuity sales data, reflecting rising demand among retirees and a shift in how financial advisers are considering these types of products alongside other retirement income solutions.”
Cowell added: “That said, common misconceptions still exist around what annuities are and aren’t.
“The reality is that there are many ways annuities can be used as part of the retirement income toolkit.
“Lifetime annuities, for example, offer the security of an income for life, while fixed term annuities provide certainty for a set period, allowing retirees to reassess their options later.”
He said: “Purchasing annuities in stages can also help mitigate the impact of inflation and market fluctuations.
“It’s important to understand the different annuity products available and the ways they can be used, which will ultimately help ensure people opt for the solutions that best meet their specific retirement needs.
“This is where advisers play a crucial role, as well as sources such as Money Helper which provide valuable information for those looking to stay informed.”
