Most pension savers risk losing out on annuity income
Almost 80% of those nearing retirement think staying with their existing pension provider will ‘make no difference' to the amount of money they receive from their annuity. But the reality is that it could cost them thousands in lost income, according to retirement specialist Partnership.
Only 13% of people surveyed by Partnership realised that by taking an annuity from their existing pension provider, they risked reducing the amount of income they can get from an annuity. Only 17% understood that smoking or being overweight could actually boost the amount they get through an enhanced annuity.
Neither did many of those surveyed (36%) realise that general ill health or having a medical condition can also lead to a greater income via an enhanced annuity.
And only 8% were aware that due to postcode pricing, living in a nice area (a factor that improves longevity) may result in a lower income from their annuity.
In addition, while you don't have to take out a joint annuity if you are married, if you choose to do so you will get a lower income – but only 12% of those surveyed realised that being married could reduce the amount of annuity income they might receive.
Andrew Megson, managing director of retirement at Partnership, said: "It is extremely worrying to see that most people simply assume that staying with their existing pension provider will have no impact on the amount they receive.
"For people with medical or lifestyle conditions, the impact of not shopping around is likely to be even more devastating as an increase of 20% in excess of a standard annuity would be reasonably typical for one of our 65-year old customers and, for severe conditions, could be considerably more."
If you are coming up to retirement, always shop around for an annuity. The Financial Conduct Authority has an annuity comparison tool on its consumer website, moneyadviceservice.org.uk.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
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.