The firm’s Real Retirement Report found that two thirds of people do not realise that being overweight or a smoker increases annuity payouts. It found that the average annuity pot is just £27,207 and the average lump sum taken is £4,338.
More than 8.5 million over 55s are jeopardising their retirement income through a “worrying level of ignorance” about annuities, Aviva says.
The report, which reviews the finances of the three ages of retirement 55-64; 65-74 and over 75, found that the majority of people do not take out joint annuities and are unaware of what affects annuity payouts.
The average income a woman derives from her annuity is £99 per month and the average man derives £151.
Women take out annuities on average aged 59, slightly earlier than men whose average is 62 years. But both start drawing an annuity significantly sooner than they have to by law.
Only 4 per cent of those over 65 believe they derive an income from an annuity while 14 per cent feel they derive an income from a personal pension and 19 per cent from an employer pension.
Aviva says this “shocking statistic” serves to highlight the fact that most people do not understand the role an annuity plays in retirement financing.
While widely available, only 29 per cent of married people under 65 take out a joint annuity and 41 per cent of married people over the age of 65. Aviva says this is due to a serious lack of understanding with 54 per cent of consumers over 55 not knowing what a joint annuity is.
The report found that most retirees and pre-retirees choose standard annuities as they do not realise that health conditions could make them eligible for an enhanced annuity and an increased annuity income.
Head of annuity propositions Darren Dicks says: “At Aviva we understand that many retirees are facing challenging times, so we want to equip them with the tools and knowledge to give them the best possible retirement.
“By considering their full range of assets – including pensions, investments and property – we can help people have the lifestyle they deserve in their later years.
“However, we also know from our research that many find retirement planning confusing – particularly when it comes to annuities. With legislation making it compulsory to purchase an annuity before the age of 75, it is worrying that people over 55 know so little about them. This lack of knowledge could see some people settling for a far lower income than they are entitled to or others finding that their income dries up all together when their partner dies.
“The type of annuity a person chooses can impact on their standard of living for more than 30 years so it is vital that they understand as much as they can about these products before making a choice. We seriously recommend that people research their options via a financial adviser or an annuity provider.
“A little knowledge could really make a difference and increase a person’s retirement income by up to 10 per cent.”