4 annuity myths that could mean you’re missing out on security in retirement

Annuities could provide you with income security in retirement. Despite this being a common goal among many thinking about their future, misconceptions may mean retirees are overlooking annuities.

According to a Standard Life study, almost half of over-50s who are aware of annuities say they don’t know how they work. Read on to discover why an annuity may be an option you want to consider.

Annuities provide you with a way to create a guaranteed income in retirement

If you have a personal pension also known as a defined contribution (DC) pension, one of the retirement challenges you may face is understanding how to turn it into an income. An annuity is one option.

You’d use a lump sum, often from your pension, to purchase an annuity. In return, you’ll typically receive a guaranteed income for the rest of your life. You could choose an annuity that would provide an income that increased each year, which may help preserve your spending power.

When you buy an annuity, your income isn’t affected by stock market volatility, as it may be with other options, and you don’t have to worry about running out of money. So, it could provide peace of mind.

With 87% of people taking financial advice saying income security in retirement is either “very” or “extremely” important to them, an annuity could be right for some retirees.

Yet, the Standard Life research indicates that annuity myths could mean some are disregarding the possible benefits.

1. 48% of people believe annuities offer poor value for money

When you purchase an annuity the rate a provider offers will affect the income you receive.

There’s a misconception that low annuity rates mean that it’s an option that offers poor value for money. However, since the start of 2022, according to Standard Life, annuity rates had improved by 48% by June 2023.

Calculations made in June 2023 reveal that an average 65-year-old woman purchasing an annuity with £100,000 could receive £158,000 over her lifetime. For men, in the same circumstances, the figure is £142,000.

So, if you’ve dismissed an annuity in the past, it may be worth re-evaluating the income it could provide.

Of course, it’s impossible to tell how much you’ll receive from an annuity when you first buy it. As well as the annuity rate, your lifespan will have an effect. However, the figures suggest many people opting for an annuity could benefit financially in the long run.

2. Almost half of people aren’t aware they can combine an annuity with drawdown

One of the reasons you might not want to consider an annuity is that it’s inflexible – you’ll usually receive a defined income each month, which you cannot change to suit your needs.

In contrast, other options allow you to adjust your income. For example, through flexi-access drawdown, you may increase or decrease how much you withdraw from your pension to match your lifestyle.

When you’re reviewing your pension options, it’s important to note you don’t have to choose just one – you can mix and match them.

So, you could use a portion of your pension to purchase an annuity to provide a secure base income. The rest of your retirement savings could remain in your pension for you to access flexibly when you choose.

3. 24% of people incorrectly believe annuities must be bought at the point of retirement

Purchasing an annuity isn’t a decision you need to make at the start of retirement either.

During the start of the next chapter of your life, you might benefit from a flexible income. Perhaps you want the opportunity to withdraw lump sums to pay for one-off costs like updating your home or travelling.

In the future, an annuity could be more suitable. Regularly reviewing your retirement plan and income could help ensure it continues to align with your lifestyle, and you might decide to purchase an annuity years after you retire.

4. 31% believe they need to be healthy to access the best annuity rates

Health issues can negatively affect some financial decisions, so it’s not surprising that 3 in 10 people receiving financial advice believe they must be healthy to access the best annuity rates. Often, the opposite is true.

If you have a health condition you may be able to purchase an “enhanced annuity”. This considers how health may affect your life expectancy and could pay out a higher regular income as a result.

Contact us if you’d like to talk about your retirement income

Understanding how to use your pension and other assets in retirement to provide a reliable income can be difficult. Whether you want support finding an annuity that’s right for you, or you’d like to explore other options, we could help.

Please contact us to arrange a meeting to talk about your retirement finances.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from 2028). The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The income will not keep pace with inflation (unless the annuity is set up to increase each year and the increase rate matches or exceeds inflation).


There is no investment risk when purchasing an annuity but you should be aware that you will not benefit from future growth on your pension fund. Where flexible drawdown is used, your money remains invested and the value and income from them can fall as well as risk.


Some pensions carry guaranteed annuity rates that you only be entitled to if you take your pension at a particular time and in a prescribed way.


Once purchased, changes to the contract cannot be made. For example, it will not be possible to amend the basis chosen, the provider selected or the level of income selected at onset.