UK millennials to embrace annuities as older generation rejects them

Most UK millennials intend to include annuities in their retirement strategies despite the sweeping changes to pension rules introduced last year, according to a major survey by Legg Mason Global Asset Management.
Pensions freedoms announced in April 2014 (and implemented a year later in April 2015) sparked a huge fall in annuity sales as those aged 55 or over were exempted from having to purchase one at retirement. In total, sales have fallen from around £2.5bn a quarter prior to the rule change announcement, to as low as £990m since the freedoms were implemented.*
However, while older savers in Legg Mason’s survey plan to eschew annuities (72% of investors aged 40 or over say they do not intend to buy one) millennials are far keener. In total, 84% of UK millennials say they are ‘highly likely’ to consider using an annuity despite being under no obligation to do so. Millennials with large pools of assets (those with at least $1m / £699,000 of investable assets) are even more enthusiastic, with 92% of respondents in this category saying they are ‘highly likely’ to buy one.
Adam Gent, Head of UK Sales at Legg Mason says: “Last year’s effective removal of the need to buy an annuity has had a huge impact on sales and our research suggests the market is unlikely to stage a significant recovery anytime soon.
“However, it is fascinating to find that younger investors, particularly those with larger pools of investable assets, are far more interested in using an annuity as part of their overall retirement strategies. 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.”