Can Default Annuities Lead to Better Retirement Outcomes?
July 1, 2025 by Paul Mulholland
As more defined contribution plan sponsors consider whether to add a lifetime income option, questions arise on whether plans should include annuity payout options as part of their default. A recent study explores some of the benefits and tradeoffs.
According to the research from the Pension Research Council, “defaulting 20% of a retiree’s assets over a threshold into an immediate annuity enhances retirement security for most plan participants,” though different annuities might benefit certain demographics more or less than others.
Wink’s Moore on the Market: According to the research from the Pension Research Council, “defaulting 20% of a retiree’s assets over a threshold into an immediate annuity enhances retirement security for most plan participants,”
“…retirees are always better off if they use a portion of their retirement assets to buy a payout annuity,” according to the report.
Not surprising.
Olivia S Mitchell had interesting insight into why annuities aren’t used more often in retirement plans, however.
“[She] explains that annuities generally don’t comply with regulations that govern investment defaults. For example, ‘an investment must allow participants to transfer out of the default option at least quarterly, and not face penalties or restrictions on access to their funds,’ a feature common with target-date funds for example, but virtually non-existent with annuities.
“‘Annuities typically don’t qualify as QDIAs because most immediate or deferred annuities are illiquid: in other words, once you buy in, the funds are locked in, usually with no or very few surrender options. This is because they are insurance products that rely on risk pooling. If people could pull out at will, it would unravel the risk pool,’ Mitchell says.” -sjm
