Bad decisions cost you 24% of your pension
Savers who make the wrong pensions decisions could see their retirement incomes slashed by an average of 24%, according to a new report issued today.
A pension with lower management fees could add £630 to a pensioner's income, while shopping around for an annuity can increase it by £850 each year.
To make up for these losses, people will need to continue working into their 70s says the report from the National Association of Pension Funds (NAPF) by the Pensions Policy Institute (PPI).
When taking into account other factors such as paying more into a pension, starting saving earlier and working longer, the report found that the average person's retirement pot could increase to £7,710, from £2,200, by making the right choices.
The NAPF is working with a host of industry leaders, consumer groups, employer bodies and employee groups to try to make pension costs more transparent and to encourage people to shop around when buying an annuity.
"People are not powerless when it comes to their pension. By making the right moves they can get a lot more for their money without having to pay any more in. People who don't get the best out of their pension could end up stuck at work for years longer than they planned. Getting a good deal on charges and annuities can mean the difference between enjoying retirement and spending years more at the desk," says Joanne Segars, chief executive of NAPF.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.