Older people in the UK are facing a ‘retirement income riddle’ that is leaving them more dissatisfied and depressed in later life, new research shows.

Analysis by our partner Legal & General and think-tank Demos of the recently published ELSA Study of Ageing has found evidence of a link between the choices people make about how they use their pension savings and their health and wellbeing. The results suggest that thousands of people are potentially choosing options that are increasing their likelihood of feeling depressed in later life or unable to plan for the future.

In particular, the research found that the biggest impact was on Britain’s poorest 50% of retirees. Those on poor or modest incomes who had put their money into investments were twice as likely to have not enjoyed their life in the week prior to taking part in the survey (19%) than those with a guaranteed income for life (9%).

People in this less well-off half were also more likely to say that they had felt ‘sad’ for much of the past week (22%), compared to the retirees who knew exactly what income they would get month to month (15%).

The study highlights a lack of later-life planning advice taken by consumers, as well as showing that many are simply taking the path of least resistance, which isn’t beneficial in the long run. In addition, the findings follow a warning of a looming pensions crisis for the self employed, who just can’t afford to save at all; 43% of those working for themselves don’t have a pension, compared to four percent of people in employment.

Since pension reforms came into effect in 2015, just 187,000 people have taken out annuities, which provide a guaranteed income for life, in comparison to more than 436,000 ‘drawdown’ customers. Yet up to 50,000 people in the lower income bracket who either defaulted or made the choice to move their pension into investments may now be finding life more difficult as a result.

Legal & General wants to raise awareness about the need for the industry to support consumers and help them to make more informed choices about their income in later life. This includes ensuring that customers get good advice and are aware of all the options for using their pension savings before they decide how to access retirement income.

L&G’s Retail Retirement Income managing director Emma Byron said: “Retirement has entered a new age. Gone are the days of carriage clocks and gold-plated pensions; the idea of a one-size-fits-all retirement is an outdated concept and now, for the first time, people face a real choice in how they want to enjoy their pension savings.

“Our research with Demos shows that in the face of more choice, consumers need better guidance and support to understand how the financial decisions they make can affect their retirement journey. Pension Freedoms is still settling into the retirement landscape but it is clear that thousands of consumers are potentially choosing or defaulting into options which could be damaging, not just for their financial circumstances but for their health and wellbeing too.

“As an industry, we have a duty of care to support customers when it comes to making decisions about income in later life, and we all clearly must do more to engage the public and guide them towards a better retirement.”

Thinking about reaching later life can be difficult, but the more prepared you are, the more enjoyable it can be. That’s why our series of guides cover topics such as talking to your family about death, funeral planning and life insurance help ensure that no unpleasant financial surprises are in store for you and your family as you near retirement.