The research suggests that while annuities guaranteeing a level income for life will continue to be popular, they are ignoring the effect inflation could have on their retirement income.
Research conducted this year by Clerical Medical shows that pensioners have seen an average rise of a third in the cost of the goods and services they purchase within the last ten years. Over the past year, pensioner inflation was 3.9 per cent, the highest in a decade.
With average retirements of 20 years becoming the norm, Prudential says even if the Bank of England achieves its 2.5 per cent inflation target, £1,000 today will be worth only £620 in twenty years time.
The Prudential research also shows that nearly 50 per cent of advisers consider the potential hedge against inflation and the higher starting income to be the main advantages of with-profits annuties over conventional annuities.
Fifty per cent of advisers anticipate that with-profits annuity sales could increase by up to 50 per cent on current levels.