Annuity mis-buying 'risks exhausting wealth' as life spans increase

Many people approaching pension age may risk exhausting their wealth by failing to buy a suitable annuity because they underestimate how long they will need to draw an income once they retire.

Research by the Institute for Fiscal Studies (IFS) has warned that many individuals in their 50s and 60s underestimate their likelihood of surviving to older ages, and could therefore be in danger if they opt not to purchase an annuity that gives them a guaranteed income for life.

The IFS stated, "Individuals who choose not to annuitise because they underestimate their longevity may be failing to buy a product which, in fact, offers them good value insurance of their income in older age." Therefore, both public policymakers and professionals in the pensions industry need to be alert to this issue.