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.
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.”