The Institute of Fiscal Studies (IFS) has warned people are underestimating their chances of survival after it found annuity sales have continued to plummet.
The number of annuities purchased has fallen from 90 per cent in 2013 to roughly 12 per cent now in spite of economic models suggesting individuals should be keen to insure against the possibility of exhausting their wealth due to living longer.
According to new work by IFS researchers many of those in their 50s and 60s underestimate their true chances of surviving to older ages.
The IFS stated: "This research provides strong new evidence that the underestimation of survival chances may be a significant factor explaining why people choose not to annuitise their wealth.
"This suggests that both public policy-makers and those in the pensions and insurance industry should be mindful of the possibility that individuals who choose not to annuitise because they underestimate their longevity may be failing to buy a product which in fact offers them good value insurance of their income in older age."
The IFS research, which was funded by the Economic and Social Research Council through a Knowledge Exchange Grant and an ESRC Secondary Data Initiative grant, and by the 2015 to 2018 IFS Retirement Savings Consortium, also pointed to other reasons for the fall in demand for annuities.
These include the anticipation of having to make large one-off expenditures, passing wealth on to children, potentially higher rates of return elsewhere or because people feel sufficiently funded by the state pension.
Prior to the introduction of the pension freedom reforms, which removed restrictions on defined contribution pension schemes for those over age 55, individuals were forced to either purchase an annuity, draw down an income up to 120 per cent of the value of an annuity income, or face a 55 per cent tax rate on withdrawals.
Research carried out by Canada Life reached similar conclusions about life expectancy.
When asked what age they expected to live to, the Canada Life research, carried out among 1003 adults in March last year, showed the average answer from the over 50s was 82 years old. Men estimated a lower life expectancy than women at 81.2 years compared with 83 years.
The insurer also found stark differences in predicted life expectancy depending on where the person lived.
Londoners are expected to live the longest with an average age of 83.6, while people in Wales average at 79.5.
Andrew Tully, technical director, Canada Life, said: "Our research shows people typically underestimate their life expectancy by around six years for women, and five years for men.
"On the one hand this is positive as people are living longer than they think, but it can also have a significant impact on financial plans.
"When we talk about averages though it is important to remember averages are just that, and can mask significant differences in life expectancy across the UK. People's retirement financial plans need to be flexible enough to cope with the unexpected while also providing a level of financial security and a combination of drawdown and annuity can deliver just that."
Latest ONS data showed 50-year-olds were expected to live on average until age 86 if they are a man, or 89 if they are a woman.
One in four men aged 50 can expect to live to the age of 95, while women of the same age can expect to live to 97.
Mr Tully said: "It is key to seek proper financial advice when planning for the future.
"An adviser will help design a plan which takes into account all the risks in retirement, be that investment risk, drawing down too much or too quickly, or even facing the possibility of outliving your savings."
