Failing to shop for an annuity can damage your wealth


Shopping around for an annuity can make a difference in income of up to a quarter, according to new figures published by providers.

According to the Association of British Insurers (ABI), the current best annuity rate from Reliance Mutual offers an income of £1,099.92 to a man aged 65 with £18,000 left after taking a 25% tax free lump sum from a pension pot of £24,000.

The figures assume a single life level annuity without a guarantee, which he is in good health and lives in Manchester.

The worst paying annuity based on the same assumptions is £839.52 from Scottish Widows, Halifax and Clerical & Medical.

Annuities are lifelong investment contracts paid for with the proceeds of a pension fund on retirement.

Lost annuity income

Once agreed, pensioners are locked into the deal – which assuming they live for 20 years after retiring at 65 years old, could make a difference of £5,200 in lost income between the best and worst paying plans.

The ABI is publishing a number of annuity examples based on fictional retirement savers as part of a campaign to encourage annuity buyers to shop around for the best deal.

The ABI warns that rates can change daily and will vary according to where the buyer lives, their age and state of health.

Around 7,700 people buy an annuity every week – and the ABI explains that choosing the right annuity can make a big difference to the income an investor earns in retirement.

Otto Thoresen, the ABI’s Director General, said: “People are living longer and interest rates are set to remain low for some time, so it is important that everyone tries to secure the best retirement income they can.

“The pensions and annuity industry wants to help people make the right decision about their pensions,  which is why we are publishing these figures. We have also launched a retirement code to offer advice to those approaching retirement.”

Retirement choices code

The retirement code makes sure providers will:

  • Offer people information about their retirement options at least two years before they give up work, including advice about managing small pension pots and shopping around for annuities
  • Give explanations about enhanced annuities for those in poor health
  • Urge retirement savers to shop around for the best annuity deal

The sample rates are available on the ABI web site and will be updated regularly.

Andrew Megson of Retirement, said: “According to research, just 13% of consumers realise that they could get less e from their annuity if they stayed with their pension provider.

“Our own analysis showed more than half of 65 year olds have health or lifestyle conditions that could make them eligible for an enhanced annuity.  Last year, just 4% of people who could have taken this product with their existing pension provider choose this an enhanced annuity.”

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