Tens of thousands of UK pensioners are losing out by investing in an annuity, with a study showing they do not even receive all the money they invested, let alone any interest. They need to live significantly longer than expected for the products to be worthwhile, it concludes.
Annuities convert retirement pots into guaranteed income and have gained a bad reputation among consumers for their poor value.
The study comes as regulators prepare to publish a report this month into the retirement income market that could recommend remedial action against providers.
Ned Cazalet, the veteran financial services consultant who conducted the study, said many pensioners were still unaware of the odds in what is in effect a bet with their insurer over how much longer they will live.
He said low bond yields and increased life expectancy had “squeezed the life out of annuities”.
The traditional way financial advisers and product providers present the deals — annuity rates — were “potentially misleading”, he added.
Even assuming the very best annuity deals available, the annualised return for a 65-year-old male who dies after five years will be minus 30 per cent.
But those consumers who do live longer than estimated get back only marginally more than they handed over, meaning the potential “upside” from buying annuities is limited.
The findings are the latest blow to annuity providers after George Osborne scrapped an effective requirement this year for retirees to buy the products.
Sales of annuities, which have been among the insurance industry’s biggest money spinners, have already halved as a result of the chancellor’s overhaul of the pensions system.