Fewer than a quarter of savers plan to buy an annuity; instead, they are likely to rely on the state pension to generate an income stream in retirement, according to research from CoreData.
The research found just more than a fifth (22%) of people planned to buy an annuity, making it the least popular product for those polled.
It also found the most popular way for people to generate an income stream in retirement was through the state pension, cited by more than two-thirds (67%) of respondents.
CoreData had polled more than 500 people to find out how non-retired retail investors planned to generate an income in retirement.
Two-fifths (40%) of those surveyed said personal saving such as cash ISAs, current accounts and saving accounts would generate retirement income, making them the second most popular option.
A further third (34%) planned to continue to work, slightly fewer planned to use income drawdown (30%), and less than a third planned to use their property (29%) and personal investments such as stocks and shares ISAs (28%) to fund their retirement.
Head of international research Craig Phillips said: “It is interesting that personal savings including cash ISAs rank higher than both income drawdown and annuities while personal investments including stocks and shares ISAs are considered above annuities; this indicates traditional retirement income products are being usurped by other tax efficient savings and investment vehicles.”
Phillips said the increase in the ISA annual allowance from £15,240 to £20,000 in April 2017 would further strengthen the product’s appeal.
He said: “ISAs can present a good option for people looking to generate retirement income because income taken from them is tax-free.
“But with cash ISAs currently offering very poor rates, stocks and shares ISAs are likely to be a more attractive option for those willing to accept some investment risk.”
A number of providers have recently announced they are pulling out of the annuity market, which has seen a slowdown in the wake of pension freedoms.
In February, Prudential joined the growing list of providers to have pulled out of the market, which includes Aegon, Friends Life, Standard Life and Partnership Assurance.
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