The way annuities are sold could mean retirees in the UK are losing a collective £1 billion a year, according to a new report from the Pensions Institute.
Commenting on the research, the National Association of Pension Funds (NAPF) highlighted the difficulties retirees face in shopping around for the best annuity deals.
‘Sharp practice’ in annuity industry
According to NAPF, some insurance firms which sell annuities are guilty of ‘sharp practice and murky pricing’.
For example, the Association accused insurers of ‘tailoring’ the price for their annuities according to the amount of money that was being used to buy them. In other words, giving customers with bigger pension pots better rates.
Annuity market is ‘complex and confusing’
The problem is compounded by the fact that annuities are relatively complex products, and many people still go for the simple of option of getting one from their existing pension scheme provider.
NAPF insists that this is often not, however, in the interests of the consumer. Its figures indicate that failing to shop around for an annuity can knock 30% off someone’s annual pension income – and in some cases as much as 50%.
A lack of advice on annuities
NAPF’s figures suggest that most people retire with pension savings of less than £50,000. And it seems that customers with these relatively small pots are particularly likely to suffer financially.
Many people do not feel confident about choosing new annuity providers themselves. However, with small pension pots, it is often not financially worthwhile for an specialist, whole-of-market advisor to advise on which new annuity should be bought.
Lacking this sort of advice, it’s not surprising that many retirees decide to simplify things by sticking with what they’ve got.
Enhanced annuities not being offered
In addition, not all providers offer enhanced annuities to those with health or lifestyle issues that might entitle them to a higher annuity from a different firm.
So, consumers who simply settle for the first rate they are offered could lose out on a one-time deal that they cannot renegotiate later.
The Open Market Option
Which? supports the ‘Open Market Option‘ of shopping around for a better annuity deal.
Looking at all the options on the market makes financial sense for financial products from savings accounts to car insurance – and annuities are no exception.