Failing to shop around for the best annuity is costing retirees an average of £4,000 over the course of their retirement, according to new research from the Pensions Policy Institute in association with LV=.
The research found that in 2016, 30,000 people bought an annuity from their existing pension provider and did not shop around for the best rate. This cost buyers £130 million in lost income, or roughly £4,000 per buyer.
Buying direct from your pension provider also means you are likely to miss out on getting an enhanced annuity that pays a higher rate to people with lifestyle issues (such as smoking or being overweight) or health problems.
Separate research from LV= shows that retirees don’t just need their retirement income to cover essentials, such as food and bills. More than half (57%) need it to meet the costs of maintaining their home while 53% want it to pay for holidays too.
A quarter said that they wanted money left over to leave as an inheritance, one in six wanted to help their grandchildren buy property, and 14% want their retirement income to pay for any care costs that may be required.
With so many demands on their retirement income, LV= says it’s important retirees consider taking advice - yet currently this is something that only 25% of those that have already retired are doing.
Although most retirees rule out advice, those that do take it up, appreciate its value. Almost nine out of 10 people feel that they made the right decision after speaking to an expert, while 75% say they got more for their money.
The government’s Financial Advice Market Review carried out earlier this year made proposals to improve access to financial advice and make it more affordable but its recommendations will not be implemented until 2018.
‘People need to take control and get retirement support’
Commenting on the research, John Perks, managing director of life and pensions at LV=, says: “Last year alone consumers missed out on a staggering £130 million over their retirement by sticking with the same provider when taking out an annuity. This is echoed across the retirement space with consumers failing to access the best retirement products. People are expecting their pension pot to stretch even further nowadays so it’s crucial they take control and get support to help them get the most from their savings.
“Government has a vital role to play in encouraging people to take advice and therefore we are urging it to maintain momentum on the financial advice reforms to ensure retirees can get the right retirement solutions for their needs.”