Annuities and income drawdown enjoyed bumper growth in 2023, which has largely continued throughout 2024. Annuities in particular have benefited from favourable conditions, as higher interest rates and therefore gilt yields have driven up annuity rates, making them a more attractive proposition.
However, understanding of retirement income options remains poor. Two fifths of DC pension holders aged two in five aged 35+ don’t know the difference between annuities and income drawdown. This knowledge gap is a hinderance to considered retirement planning, and can lead to unsuitable choices at retirement.
90% think pension providers should communicate product terms better. As well as highlighting the need for better understanding, this presents an opportunity for providers to connect with pension savers before retirement. Brands can use more regular contact to improve understanding and encourage savers to take a keener interest in their retirement saving and planning journey.
Favourable rates have driven a rise in demand for annuities, though income drawdown is the most common retirement income solution. Providers still need to address significant knowledge gaps.
Saltanat Kuermannal, Financial Services Analyst
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