Annuities will have a ‘big part to play’ in retirement planning for millennials, new research has predicted, despite government figures revealing 300,000 existing holders will cash theirs in.
Part of a Europe-wide study, the survey of 300 UK investors by asset management firm Legg Mason, revealed 72 per cent of investors aged 40 or over do not intend to buy an annuity.
By comparison, 84 per cent of 25-34 year olds say they are ‘highly likely’ to consider using one - even though last year’s pension reforms mean they are no longer compulsory.
Wealthier millennials - those with at least £699,000 of investable assets - are even more likely to seek an annuity with 92 per cent of respondents in this category saying they are ‘highly likely’ to do so.
The annuities market was hit hard when chancellor George Osborne scrapped the need for people to buy the retirement product as part of the liberalisation of the pension market, announced in the 2014 Budget.
According to figures released by the Association of British Insurers (ABI) annuity sales have fallen from around £2.5bn before the reforms were announced to £990m since the freedoms were implemented.
A consultation paper by HM Revenue & Customs on annuity re-sales, issued this week, revealed 300,000 people are expected to take up the option of cashing in their existing annuities when it becomes available next year.
Adam Gent, head of UK Sales at Legg Mason said while the market is unlikely to stage a significant recovery any time soon, it is “fascinating” that younger investors are far more interested in using an annuity as part of their overall retirement strategies.
He added: “That would imply that, while providers are likely to continue to struggle with the fallout of the pension freedoms in the short term, annuities could still have a big part to play in the UK retirement market in the coming years.”
