Why we must debunk pension annuity myths

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Our recent research¹ reveals that, even within the over-50s advised population, there’s sizeable uncertainty as to how pension 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.

Let’s start with the basics

Following a decline in popularity after the introduction of pension freedoms, annuities are once again piquing people’s interest. But as annuities have lived so long in the shadows, some basic education is needed to bring their benefits to light and re-engage consumers with the thought of buying one.

Our research reveals that, while almost all advised consumers say that income certainty (96%) and security in retirement (99%) is important to them, less than half (45%) believe that lifetime annuities will give them a guaranteed 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 12 statements and asked if they were true or false. On average, 45% marked ‘don’t know’ across all statements.

Some key areas of uncertainty

40%	56%	49%
Don’t know if an annuity runs the risk of them running out of money in later retirement	Don’t know if they can buy an annuity in combination with drawdown	Don’t know if an annuity requires them to use 100% of their pension savings

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Let’s dispel those common pension annuity myths

According to our Retirement Voice 2025 report, most people want both a guaranteed income for life (89%) and flexible access to their pension savings (79%)².

Having an annuity as part of an overall retirement income mix could tick both those boxes, whilst also helping to ease some anxieties over income certainty. But some long-standing annuity myths continue to linger.

MYTH 1: Annuities can’t be passed onto loved ones

Most consumers either don’t know (53%) or don’t believe (10%) that annuities can be set up to cover the life of a surviving partner. When in fact, pension annuities come with various benefit features designed to help ensure your surviving loved ones are covered.

For instance, value protection provides a death benefit to a consumer, ensuring their investment is returned to their beneficiary (minus any income taken already), while purchasing a guaranteed period for up to 30 years secures a regular income for a consumer’s beneficiaries or dependents in the event of death.

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

Over a quarter of consumers (26%) 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 annuity on an enhanced rate 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

Only 33% of people know that an annuity can be bought at any point in their retirement, with various amounts of money. The reality is that clients can use some or all of their pension savings to buy an annuity – and they can be purchased later on in retirement.

MYTH 4: Annuities can’t protect against inflation

It’s possible for annuities to protect against the impact of inflation if this option is purchased at the point of sale.

For instance, clients can choose whether to increase their income by a fixed percentage or in line with the Retail Price Index on an annual basis. It could also pay to annuitise in stages to help mitigate the impact of inflation, as the rates on offer will improve as your client gets older.

MYTH 5: You can’t combine annuities with drawdown

Just over a third of consumers (35%) can correctly identify that annuities can be used flexibly, such as in combination with drawdown. At the same time, 43% don’t know whether it’s possible to buy an annuity at different points in retirement.

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 understandably look to their advisers to both 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 agree how much of their client’s unsecured pension savings should 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.

Discover our full range of retirement income solutions, including lifetime and fixed-term annuities, by visiting our hub: Retirement income options | Standard Life Adviser

 

Sources

¹ Research was commissioned by Standard Life and conducted by Opinium, with a nationally represented sample of 2,000 adults aged 50+ between 27th August – 1st September 2025

² Standard Life Centre for the Future of Retirement - Retirement Voice - October 2025