Less than a quarter of savers plan to buy an annuity to fund their retirement, a survey suggests, confirming the product’s declining popularity.
A CoreData Research study surveying over 500 respondents found the most popular way non-retired retail investors plan to generate an income stream in retirement is through the state pension, cited by 67 per cent of respondents.
This is followed by other personal savings such as cash ISAs, current accounts and savings accounts (40 per cent), continuing to work (34 per cent), income drawdown (30 per cent), property (29 per cent), other personal investments such as stocks and shares ISAs (28 per cent) and buying an annuity (22 per cent).
“It is interesting that personal savings including cash ISAs rank higher than both income drawdown and annuities while personal investments including stocks and shares ISAs are considered above annuities,” says Craig Phillips, head of international, CoreData Research. “This indicates traditional retirement income products are being usurped by other tax efficient savings and investment vehicles.”
Phillips adds that the increase in the ISA annual allowance from GBP15,240 to GBP20,000 in April 2017 will further strengthen the product’s appeal. He also suggests that the dividend allowance cut announced in the March 2017 Budget could encourage savers to place high dividend-paying investments within ISAs.
“ISAs can present a good option for people looking to generate retirement income because income taken from them is tax-free,” says Phillips. “But with cash ISAs currently offering very poor rates, stocks and shares ISAs are likely to be a more attractive option for those willing to accept some investment risk.”
A number of providers have recently announced they are pulling out of the annuity market, which has seen a slowdown in the wake of pension freedoms.