Seeking peace of mind in retirement: the continued appeal of a guaranteed income | L&G

Recent market and geopolitical volatility have once again highlighted the value of stability and certainty within retirement planning. For clients in decumulation, L&G’s Distribution Director of Retail Retirement, Cecilia Furner, explains how managing sequencing risk, income stability and day‑to‑day cash flow becomes increasingly important when markets are unpredictable.

That’s where solutions that provide a guaranteed income can play a key role in helping advisers deliver confidence and structure within retirement strategies, supporting better client outcomes and a more robust planning framework.

A blended approach 

More advisers and their clients are increasingly recognising the role a guaranteed income can play as part of a blended retirement portfolio. Combining guaranteed income with flexible drawdown strategies allows financial planners to balance income security with growth potential. This ensures that essential expenses are covered, while other assets can remain invested, supporting longer-term growth and giving clients more freedom in how they access their wealth.   

Many clients will be unsure about the impact of market volatility, focusing on certainty and household budgeting to manage the demands on their income. The guaranteed income offered by an annuity offers clients peace of mind that, even in times of uncertainty, they will continue to receive a regular retirement income not unlike the monthly salary they were accustomed to when they were working. A secure income can also bridge the psychological shift into decumulation, giving clients greater confidence to spend while preserving flexibility elsewhere in the portfolio.

These trends are prompting many firms to revisit their Centralised Retirement Propositions (CRPs). Sequencing risk, income sustainability and tax efficiency are becoming increasingly interconnected, particularly when markets are volatile and policy changes are reshaping the tax treatment of retirement assets. As a result, advisers are looking at how different income sources, including guaranteed income, drawdown and housing wealth, can work together to create resilient retirement strategies.

Retirement wellbeing 

The benefits of a guaranteed income go well beyond rates. Annuities provide guaranteed, regular income and this has a direct impact on retirement wellbeing. For example, L&G’s research with independent Danish think tank, the Happiness Research Institute, found that annuity-holders are more likely to report lower levels of stress (51%) and the highest level of financial confidence (24% versus 21%) compared to those without one.¹  A secure income stream can therefore play a key role in supporting both financial and emotional resilience in later life. It could be the difference between simply getting by and really enjoying retirement.  

The IHT implication 

Proposed changes bringing unused pension funds into the scope of inheritance tax from April 2027 are likely to fundamentally reshape how retirement income is structured. The longstanding approach of drawing on non‑pension assets first, while preserving pension wealth for inheritance, may no longer be the most tax‑efficient strategy for many clients.

As a result, adviser conversations with clients are evolving to help them navigate these changes, with demand for financial advice likely to increase. In this environment, part annuitisation may become a more attractive option for certain clients, particularly when balancing income needs, tax efficiency and estate planning objectives. It is also worth noting that joint‑life annuities are not expected to fall within the scope of inheritance tax.

Fixed term focus 

Many clients may not be aware that there are several types of guaranteed income products available to them. For example, there are specific benefits associated with fixed-term annuities (FTAs). While technically purchased under flexi-access drawdown rules, FTAs are a long-established retirement solution that support clients with a variety of needs.  

FTAs are good at enabling clients to keep their options open as they provide a guaranteed income for a shorter term. They can be particularly useful for those reducing working hours, retiring before State Pension age, or choosing to defer the State Pension, as FTAs can help bridge the income gap. For clients seeking a more tax efficient alternative to taking their whole pension pot as cash, FTAs also allow income to be spread over several years, with fixed terms ranging from three to 40 years.   

Exploring all avenues  

As retirement planning continues to evolve, advisers are adopting a holistic approach by considering all assets available. This involves carefully weighing pensions, investments, and property wealth to design income strategies that are robust and tax-efficient, giving clients confidence and financial wellbeing in retirement years. Guaranteed income, flexible drawdown, and housing wealth all have a role to play. The key for advisers and their clients is understanding how these solutions can be combined to support sustainable income and greater confidence throughout retirement.

¹Analyses were conducted by the Happiness Research Institute on a population-weighted sample of 3,000 UK retirees that responded to a cross-sectional online survey conducted by Opinium in April 2024. The happiest retirees were defined as those with a life satisfaction score greater than the sample median.