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Annuitants lose £765m income by not shopping around

50 per cent of annuity customers stay with their current pension provider and could be losing out on thousands

Retirement Advantage pensions technical director Andrew Tully

Customers who do not shop around for an annuity are collectively missing out on £765m of income over a 20-year retirement.

According to Retirement Advantage research, 50 per cent of annuity customers stay with their current pension provider rather than shopping around for an annuity.

Retirement Advantage analysed industry data from the first two years of pension freedoms.

The £765m figure was reached by calculating that over the course of a 20-year retirement, the average annuity purchaser will lose £8,460 of income because they did not get the best deal.

The business explains that between April 2015 and June 2017 around 180,900 annuities were bought, of which 50 per cent, or 90,450, did not shop around.

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Using the average value of an annuity purchase, which is £55,700, the difference between the average standard rate – £2,740 per year – and the average enhanced rate – £3,163 per year – is £423 per year, or £8,460 over a 20-year retirement.

Retirement Advantage pensions technical director Andrew Tully emphasises the importance of getting financial advice to get the best value annuity deal.

He says: “Unfortunately the pension freedoms have given people a licence to lose money, as half of those buying an annuity fail to shop around and get the best deal. This situation has actually got worse since April 2015.”

Tully adds: “We shouldn’t lose sight of the issue of poor value and the lack of shopping around also extends to the drawdown market. While drawdown is not a one off purchase like an annuity, it is still important people look around for the right product, as you can easily find yourself caught out by high charges.”



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 4th July 2017 at 12:10 pm

    No surprises here. And, with the new advice allowance, it should be pretty easily fixable by way of mandating OM as the default option.

    Providers should be banned from quoting any annuities other than those based on GAR’s.

    Those whose systems cannot accommodate partial withdrawals from old policies should be compelled to advance the advice allowance and mark it (perhaps with a reasonable roll up) as a debt against the eventual maturity value.

    I don’t understand why the FCA doesn’t just GTF on and do it.

  2. Apart from where there are guaranteed annuity rates, in the last 7+ years I have not once failed to achieve a better income for a client than that offered by their current provider – even once our fee is deducted from the capital under consideration.

    For what may well be the last ‘big’ financial decision being made, I cannot understand why people fail to seek advice or, at the very least, shop around themselves.

    Unfortunately, inertia can be very expensive.

  3. I am afraid I have absolutely no sympathy for anyone who does not shop around. If they cannot be bothered to take an hour of their lives to have a look at what is to be a hugely important decision then they deserve nothing more than they get. Apparently those at pension age will pend 2 to 3 hours surfing the net to find a suitable holiday for themselves on atlas one occasion a year.
    Until and unless the FCA mandate the OMO as the default option nothing will change. They should insist that every provider includes at least 1 link to an annuity comparison site in their wake up packs. They should further not allow any accumulation provider to pay any benefits until they get confirmation from the client that they have looked at a comparison site and are happy they are getting a suitable annuity from the existing provider. If the FCA were actually serious about protecting idiots on this front it is the least they could do. Stop trying to pin the blame on the lazy thick public on providers all the time.

  4. Articles like this really make me laugh…. I mean how far down the rabbit hole does one need to go on this… I say not far at all

    I’m with Marty on this I have little to no sympathy for customers who don’t look around or indeed DIY their own finances and end up getting it all terribly wrong.

    Its not as if the “WARNING” signs are not there

    I think there is more for the FCA to worry about, in a rapidly shrinking annuity market; over regulation (along with other things) again has reduced supply, competition and product invention

    So are we down to the last 3 or 4 grey boring suits in the wardrobe to choose from ?

  5. Julian Stevens 4th July 2017 at 3:09 pm

    So we’re all (so far) pretty much agreed that this problem is largely due to YET ANOTHER FAILURE on the part of the regulator. Pensioners are missing out on millions of pounds of potential additional income whilst the FCA harries advisers on issues which, I think most people would agree, are vastly less important to the best interests of consumers generally.

    And no body exists with the powers necessary to get anything done about it.

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