Only one-in-14 savers favour annuity-only retirement plan

Less than one in 10 retirement savers plan to convert their whole pension pot into an annuity, new research shows. 


A CoreData Research study of 370 UK retail investors found just 7 per cent of those saving for retirement would use all their pension savings to purchase an annuity only. 


But despite the low appeal of the annuity-only route, nearly half of savers would consider an annuity when combined with other retirement options. Over four in ten (43 per cent) say a mixture of options — including buying an annuity, taking a lump sum and keeping some invested — holds the most appeal when it comes to accessing pension savings. This mixed approach is particularly popular among women (50 per cent vs 39 per cent men). 


“While record low rates have dented appetite for the annuity-only option, our findings suggest that annuities still have a role to play in retirement plans,” says Craig Phillips, head of International, CoreData Research. “Furthermore, the market turmoil unleashed by Covid-19 means that fixed term annuities could hold particular appeal for those seeking a degree of certainty over a specific period.” 

Low rates, cited by more than a third (35 per cent) of retirement savers, are seen as the biggest disadvantage of annuities. This is followed by fees and costs (19 per cent), inflexibility (12 per cent) and taxation issues (12 per cent). 


Meanwhile, nearly one-third (31 per cent) of those saving for retirement think taking a tax-free lump sum of 25 per cent and moving the rest into income drawdown presents the best option when accessing pension savings. Men (35 per cent) are more likely to favour this approach than women (23 per cent). 

Less than one in five (16 per cent) would choose to take multiple lump sums whenever needed and just 3 per cent say they would take their entire pension pot as cash. 


In terms of what investors would use their pension lump sums for, the most popular choice — cited by 43 per cent of savers — is holiday or travel. This is followed by paying off a mortgage (34 per cent), paying off other debt (20 per cent), emergency cash (20 per cent) and helping family members (13 per cent). More women (27 per cent) than men (15 per cent) say they would use a lump sum for emergency cash. 


Investors with a financial adviser are more likely to say they would use lump sums for holidays or travel (48 per cent) than their non-advised counterparts (37 per cent). Non-advised investors are more likely to use lump sums to pay off their mortgage (41 per cent) than advised investors (28 per cent). 


“These findings may reflect different levels of wealth between advised and non-advised respondents,” adds Phillips. “Advised investors may be better off financially and therefore more likely to think they can afford holidays.”