Annuities may be regaining popularity, but here's eight myths we're still falling for

Hayley Kirton
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We may be more interested in annuities but we're still not clear on how they work (Source: Getty)

Interest in annuities may be on the rebound, but research out today shows that some people might be starting out on their retirement product shopping trip with a few misapprehensions in mind.

Common preconceptions unearthed by Retirement Advantage included "annuities are poor value", "I won't live long enough to worry about buying an annuity" and "I'd be better off managing my own money".

However, previous research by Retirement Advantage has found that rates on annuities can differ vastly, indicating that people need to shop around rather than tar all products with the same bad-value brush.

Meanwhile, Office for National Statistics figures show that the average life expectancy for those aged 65 has shot up over the last 20 years, meaning that people need to make sure their pension will cover more years than previous generations would have had to worry about.

Read more: Pension black hole grows by £120bn in the space of six weeks

"The pension changes have created huge interest in the market, and companies have responded with new product options," said Andrew Tully, pensions technical director at Retirement Advantage. "The annuity, the only sure fire bet of a guaranteed lifetime income, has also received a make-over, which has addressed many of the concerns people had about the product.

"However, the message that annuities have changed isn’t well known unless you receive financial advice, which could potentially mean people ignore them because of out-of-date preconceptions."

Retirement Advantage's top eight annuities pre-conceptions:

1. Annuities are poor value

2. The pension company keeps all the money if I die

3. I can’t leave my annuity savings to my family

4. I’d be better off managing my own money

5. I could get a better income using drawdown

6. Annuities are a one off purchase

7. I can’t change or stop the income from my annuity if my circumstances change

8. I won’t live long enough to worry about buying an annuity

Figures from the Association of British Insurers (ABI) published earlier this year discovered that, one year on from the introduction of the pension freedom rules, 61,700 annuities, worth £3.3bn, had been taken out since the reforms were introduced.

Read more: Eleven million people would top up their pensions if they knew about this

Menawhile, last November, the ABI found that annuity sales had increased during the third quarter of 2015 to 22,380, which represented the first quarter-on-quarter increase for annuity sales in three years.

The pension freedom rules, which came into force last April, essentially allow those aged over 55 to dip into their pension pot without first purchasing an annuity.

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