Legg Mason Global Asset Management, a US-based firm, funded a study, conducted by Northstar Research Partners, among 5,370 high net worth individuals in 19 markets worldwide. When UK respondents to the survey had their answers broken out from the global figures, data showed that while older generations are rejecting annuities, 84 per cent of UK millennial investors are highly likely to consider embracing annuities in retirement.

“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,” said Adam Gent, head of UK sales at Legg Mason.

“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,” Gent added.

This publication is in contact with Legg Mason to obtain data from the 18 other nations referred to in its survey because its commentary so far only applied to the UK experience. 

It should be noted that the main sample group for the survey was among older investors aged 40-75. For example, in the US Legg Mason surveyed 500 investors aged 40-75 but only surveyed 100 people aged 18-39. In the European part (the UK, France, Spain, Italy, Germany, Switzerland, Belgium, Sweden) around 200 people per country were aged 40-75, and around 60 in each country were aged 18-39, out of a total of 2,122 people.

Annuities have lost their attractions to older investors because low interest rates have made these costly for pension funds. The cost of annuities meant there was pressure on the UK government to reform the system. Last year, UK finance minister George Osborne removed the compulsion to buy annuities. One effect was to drive down annuity sales from around £2.5 billion a quarter prior to the rule change announcement, to as low as £990 million since the freedoms were implemented (source: Association of British Insurers). One worry, expressed at the time of the new reform, was that some holders of pension pots would blow the money on consumer goods, holidays and other luxuries, creating a future problem if they outlived their money.

People can, if they receive professional advice, also move funds from defined benefit pensions and turn them into defined contribution schemes. The government has also changed inheritance rules so that people can pass on pension savings without the current tax rate of up to 55 per cent. This could be a bonanza for wealth managers and other sorts of private client advisors. Less benignly, arguably, such a change could tempt people into unwise savings or, worse, improvident spending.

Legg Mason told this publication that it does not sell annuities or pensions products.