The guaranteed income offered by annuities means annuity-holders are more likely to report lower levels of stress and the highest level of financial confidence compared to those without one, according to a new study.

The research from L&G also revealed that a recommendation from a financial adviser was the top reason people choose an annuity (31%).

The study was prepared in conjunction with the Happiness Research Institute, an independent Danish think tank focusing on wellbeing, happiness and quality of life.

It explored the lives and finances of 3,000 UK retirees, looked at the connection between financial security and wellbeing in retirement, and the link between annuities and happiness.  

It found that retirees with an annuity scored more positively across multiple wellbeing measures than those without one. They reported greater satisfaction with their current lives, relationships, free time and social activities.

The advantages for annuity holders went beyond just wellbeing considerations, according to the report, and included benefits around managing finances in retirement. Even when the data was assessed across income levels, those with an annuity were 27% more likely to find their finances predictable and easy to follow.

When examining reported affordability challenges, annuity holders were 40% more likely to consistently afford their credit card payments or loans compared to those without an annuity.  

Despite the benefits, many retirees continued to overlook annuities. The latest FCA Retirement Income Market Data showed that, despite a recent increase in annuity sales, only 10% of pension pots accessed for the first time in 2023/24 were used to purchase an annuity.

When it comes to what drives people to choose an annuity, advice played a crucial role. The draw of receiving regular payments and the assurance of a stable income that lasts a lifetime were also key factors, with 23% saying those benefits were important. Additionally, 16% opted for an annuity to make budgeting easier, while 13% wanted greater control over their finances.

Retirees were also looking to use annuities as part of a blended retirement, understanding the importance of choosing retirement products that are right for each individual’s circumstances.

Lorna Shah, managing director, Legal & General Retail Retirement, said: “Too often, conversations around the value of an annuity are limited to rates. However, our findings reveal a clear ‘happiness advantage’ for those with annuities.

“The stability of a guaranteed income gives retirees peace of mind that their money won’t run out, even if they live past 100. It takes the guesswork out of budgeting and lets people focus on enjoying retirement, rather than spending time worrying about their finances.”

• Analyses were conducted by the Happiness Research Institute on a population-weighted sample of 3,000 UK retirees that responded to an online survey conducted by Opinium in April. The happiest retirees were defined as those with a life satisfaction score greater than the sample median.