Retirees with a guaranteed income reported higher levels of satisfaction and faced fewer affordability challenges, a study from Legal & General and the Happiness Research Institute has found.

The research, which explored the lives and finances of 3,000 UK retirees, examined the connection between financial security and wellbeing in retirement and the link between annuities and happiness.

This revealed that retirees with an annuity scored more positively across multiple well-being measures than those without. They also reported greater satisfaction with their current lives, relationships, free time, and social activities.

In particular, annuity holders were more likely to report lower levels of stress (51 per cent) and higher levels of financial confidence (24 per cent vs 21 per cent) than those without one.

Even when the data was controlled across income levels, those with an annuity were 27 per cent more likely to find their finances predictable and easy to manage.

When examining reported affordability challenges, they were also 40 per cent more likely to consistently afford their credit card payments or loans than those without one.

However, Legal & General argued that many retirees continue to overlook the benefits of an annuity, pointing out that, despite average annuity rates for a healthy 65-year-old increasing by 2.5 per cent since January 2024, data from the Financial Conduct Authority showed that just 10 per cent of pension pots accessed for the first time in 2023/24 were used to purchase an annuity.

Legal & General said a recommendation from a financial adviser was the top reason people opted for an annuity (31 per cent), emphasising the importance of advice and guidance in the retirement planning process.

The draw of receiving regular payments and the assurance of a stable, lifetime income were also key factors, with 23 per cent saying these benefits were important, while 16 per cent opted for an annuity to make budgeting easier, and 13 per cent wanted greater control over their finances.

Legal & General managing director, Lorna Shah, said the findings revealed 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 worrying about their finances," she continued.

"While the benefits of an annuity can often be overlooked when it comes to retirement planning, it's important to note they don't have to be the only solution as they can be part of a blended approach.

"Combining an annuity's guaranteed income with other sources, such as income from investments or drawdown, can provide even more flexibility, ensuring that essential expenses are covered while offering the freedom to grow other assets."

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