Why we must debunk annuity myths

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Adviser Insight and Opinion team

September 04, 2023

5 mins read

How alive are consumers to the current annuity renaissance?  

Our latest research1 reveals that, even within the over-50s advised population, there’s sizeable uncertainty as to how annuities work and what benefits they can provide. If left unchecked, this confusion could present unnecessary barriers to consideration – and may even get in the way of many consumers being able to enjoy a better financial outcome in retirement.


We need to start with the basics

Given that annuities have seen a decline in popularity since the pension freedoms, it’s understandable that some basic education will be needed as we look to re-engage consumers with the thought of buying one.

What’s perhaps the most striking about our findings is that, while almost all advised consumers (99%) say that income security in retirement is at least somewhat important to them, less than half (41%) believe that annuities are the best option for guaranteeing an income for life.

While this in itself could at least open the door for a conversation, it isn’t the only area where advised consumers could potentially benefit from hearing more of their adviser’s expertise.

Indeed, we tested the overall knowledge our research respondents had about annuities by showing them 18 statements and asked if they were true or false. On average, a third (32%) marked ‘don’t know’ across all statements.


Some key areas of uncertainty

Don’t know if an annuity would address the risk of outliving their savings.  


Don’t know if they can buy an annuity in combination with drawdown.

Don’t know if an annuity is a ‘one size fits all’ retirement solution.

We need to dispel common myths and misconceptions

We know that having certainty of income in retirement is a key concern for most people (78%) – while more than half (58%) also worry about running out of money in the future2

Having an annuity as part of an overall retirement income mix could help to ease some of these anxieties, but some long-standing myths continue to linger. 

MYTH 1: Annuities don’t offer good value for money 

While almost half of advised consumers (48%) still associate annuities with being expensive and offering poor value for money, this narrative has changed. In fact, rates have improved by 20% since June last year (and have jumped a massive 48%) since the beginning of 20223.

In monetary terms, the improvements over the last 12 months mean that a healthy 65-year-old male with a pension pot of £100,000 could now expect to pocket over £25,000 more over the course of their lifetime.

MYTH 2: You need to be healthy to get a good annuity rate

Almost a third of advised consumers (31%) believe that people with no underlying health conditions would qualify for a better rate – but in fact the opposite is true. Indeed, if your client has a medical condition, they could end up with higher income payments for life.

An enhanced annuity works on the basis that, if your client has a health condition or a lifestyle issue, they may have a shorter life expectancy – and so their annuity payments will be paid over a shorter period of time. This means that some annuity providers, like us, will be prepared to pay them more each year.

MYTH 3: Buying an annuity is a one and done decision

More than a third of advised consumers (34%) believe annuities must be purchased at the point of retirement, while more than a fifth (22%) think they would need to use all their pension savings to buy one. 

The fact is, consumers can use some or all of their pension savings to buy an annuity – and they can be purchased at any point in retirement. It could also pay to annuitise in stages as the rates on offer will improve as your client gets older.

MYTH 4: Annuities can’t be personalised

Almost a quarter (23%) of advised consumers believe annuities offer a one-size fits all solution to retirement. More than a third (35%) also think they don’t offer any protection against the effects of inflation – while 4 in 10 (40%) don’t know if they can be set up to cover the life of a surviving partner.

Of course, most pension annuities will allow your client to add extra features so they can tailor things to meet their exact needs. These options will usually include a range of death benefits to choose from, along with a variety of ways to protect the value of their annuity payments from the impact of inflation.

MYTH 5: You can’t combine annuities with drawdown

Only half the advised population (52%) can correctly identify that annuities can be used flexibly, such as in combination with drawdown. At the same time, around a third (32%) don’t know whether it’s possible to buy an annuity at different points in their retirement, using different amounts. 

The reality for many consumers is that they may actually enjoy a better outcome if they were to combine the flexibility of drawdown with the security of an annuity, and then regularly review the balance between the two. This could see them gradually turn more of their unsecured pension savings into a guaranteed lifetime income as they grow older or their needs change.

Advisers have a key role to play

If this new era for pension annuities is to take off, the initial spark will need to come from the advice conversation. Advised consumers will naturally look to their advisers to help them understand their retirement income options, and then recommend the right strategy to suit their needs.

And while an income solution that combines flexibility with certainty may deliver a better outcome for many, this shift would inevitably create a need for deeper ongoing client reviews. 

For instance, if the adviser’s recommendation was for their client to annuitise portions of their pension savings in stages, they would need to contemplate the optimum time to do so – and also consider how much of their client’s unsecured pension savings should then be converted into a guaranteed income for life.

Of course, this isn’t the only time advisers will have had to make changes to their approach – and ultimately they’re still best placed to make the right calls.


Get independent insight into our offering

Find out how the Standard Life Pension Annuity could help your clients enjoy a guaranteed income for life.  


Phoenix Life Limited, trading as Standard Life, is the provider of the Standard Life Pension Annuity.


1Research was commissioned by Standard Life and conducted by Opinium, with a nationally representative sample of 2,000 adults aged 50+ (this number included 204 adults who currently pay for professional financial advice) between 6 – 14 March 2023.

2Standard Life, Retirement Voice, 2022.

3Annuity rates data provided by AMS Retirement. Accurate as of June 2023.



The information on this site is for qualified financial advisers and must not be relied on by anyone else. If you are not an adviser please go to our customer website for more information about our products and services.

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