Designing Annuities for the People

Designing Annuities for the People, senior couple smiling and hugginng.

The Melbourne Business School takes a closer look at the decision-making processes and perceived value of annuities – Designing Anuities for the People.

The annuity market in Australia is only a fraction of the number of people in retirement, but why is that so? What makes people decide to buy an annuity, or not?

This is the focus of a recent research paper from the Melbourne Business School Orford Initiative. The researchers interviewed annuitants to better understand the decision-making processes through which they purchased an annuity, including key motivators and the influence of advisers and personal networks.

Considerations when planning retirement

When people are planning for retirement, they usually give careful consideration to financial factors such as future expenses and financial security. The type of product they might buy is a secondary consideration.

When asked why they decided to purchase an annuity, responses focus on certainty, peace of mind and comfort in receiving guaranteed income and longevity protection.

But despite these benefits, people don’t just wake up and decide to buy an annuity. So, what are the main influencers encouraging this type of retirement income decision ?

In fact, the research identified a whole range of influencers, all leading to a key point – a trusted financial adviser. Even more so if there is an existing relationship between the adviser and the client, and an established level of trust.

So why doesn’t everyone buy an annuity?

Researchers found that psychological traits such as risk aversion and negative financial experiences made annuities a more attractive option. But it is helpful to consider why people don’t buy annuities, especially given the peace of mind they bring.

Factors mentioned in the study include complexity, negative experiences of others, and the loss of capital to leave as a bequest –  key findings for financial advisers and product providers to consider when designing and selling annuities.

Designing for the people

Designing a retirement product should meet the needs of potential clients and offer features they consider important. It needs to provide the security a person is looking for in the retirement, and be designed to attract favourable tax and social security treatment. Above all, it needs to be simple to explain and readily understood, and that is where many retirement income products have failed.

Lessons for financial advisers

Product providers and financial advisers need to understand their clients’ longevity needs and how annuities can be part of an effective retirement strategy. Further, they need to consider the lessons of the Melbourne Business School Orford Initiative research, and have the right tools on hand to be able to explain the most suitable product to clients in simple terms to help them make purchasing decisions that lead to the best possible outcomes.

Click here to read the full Melbourne Business School Orford Initiative ‘Understanding  the Annuity Experience’ Report.

Click here to see all the full collection of Melbourne Business School Orford Initiative reports.

To read more about The Orford Initiative – a three-year project conducted by Melbourne Business School investigating key issues within the Australian Retirement Ecosystem, funded by the Orford Foundation in collaboration with the Melbourne Business School visit here.


Optimum Pensions was launched in 2017 with a single mission – to help Australians lead a comfortable retirement. The Optimum Pensions innovative retirement income solutions are specifically developed to address longevity risk and provide greater peace of mind for all retirees; no matter how long they live.

The Optimum Pensions, award-winning LifeSpan Calculator builds confidence around personal life expectancy and retirees’ possible retirement planning horizon.

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