Research has recently been undertaken into whether retirees would choose to purchase an annuity with their pension fund, if they had the choice. Apparently, of the 3,500 people were surveyed between the ages of 50 and 64 almost 60% said that they would not, if they didn't have to.
The main reason was due to inflexibility. Almost 50% of the people surveyed believed they would be able to generate higher income than the amount offered by annuities. Other people said that they would rather pass the money onto their families or they didn't think they would live long enough to see a decent return.
Our View
Currently, anyone with a pension must use at least some of the fund to purchase an annuity before the age of 75. With people living longer and accumulating more wealth, many people are forced into annuity purchase when they would actually choose different, if given the choice.
We believe that when you approach retirement you need to guarantee the basic income you will need for day to day living. This is where an annuity can be very useful. You can choose how you want the payments made, in line with your living requirements.
For the tax-free cash lump sum from pensions, many people choose to pay off any outstanding debts or invest the money for additional income. Whilst we do not believe people should be forced into purchasing annuities, they do have their place for providing income. If people did not have to use their pension funds to purchase income we could see an increased spending culture with more and more people relying on the State for retirement hand-outs.