A significant financial shortfall is affecting millions of people over 50 across the UK, with individuals potentially missing out on a substantial boost to their retirement income every year.
The £7,836 Annual Shortfall
Recent analysis has revealed a stark reality for those approaching retirement. According to data from the Hargreaves Lansdown annuity comparison service, a 65-year-old with a £100,000 pension pot could secure an annual income of up to £7,836. This is based on a single life level annuity that includes a five-year guarantee.
Despite this potential, a widespread lack of understanding means many are not claiming this guaranteed money. Although annuity sales have seen a notable increase of 34 per cent to £7 billion in 2024, a deep knowledge gap persists among the over-50s regarding how these products function and how they can be used to achieve a desired retirement lifestyle.
A Clear Mismatch in Retirement Goals and Knowledge
The core of the issue lies in a disconnect between what people want and what they know. A survey highlighted that around 35 per cent of over 50s desire a “steady and stable” income but fail to identify annuities as a viable method to achieve it.
The knowledge gap is particularly pronounced among women. While 52 per cent of women stated they prioritise “comfort and freedom” in retirement (compared to 46% of men), very few understood that an annuity could provide the financial security to underpin that freedom.
Furthermore, a stark disparity exists in understanding key annuity features. Only 13 per cent of women were aware that annuities can include inflation protection, a figure that doubles to 26 per cent for men. This leaves a significant portion of the population financially vulnerable to rising living costs in their later years.
Expert Insight and the Push for Awareness
Steve Butler, Managing Director of Pension Potential and founder of National Annuity Day, commented on the findings. He said, “The survey highlights a clear mismatch between what people want in retirement and what they understand about how to achieve it.”
Butler emphasised that many are seeking the very stability that annuities are designed to deliver, but low understanding prevents them from taking action. He stressed that this lack of knowledge, “particularly amongst women, risks people missing out on the financial security they want.”
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, provided context for the recent surge in annuity sales. She pointed out that the rise is “easy” to understand given that annuity rates have “boomed” due to soaring interest rates and high gilt yields.
She provided a concrete example, noting that the £7,793 per year available now is a vast improvement on the £4,943 available in August 2021. This attractive value is leading more people seeking guaranteed income to “lock in” these rates.
However, Morrissey also issued a crucial warning about the irreversible nature of annuity purchases. She stressed that product choice is critical and underscored the absolute necessity for savers to conduct thorough research before making any commitment.
