People who are approaching retirement may have to spend a great deal of time shopping around for the best annuity- or risk losing up to half their income.
Current laws state pension providers must alert retiring workers that they are allowed to scour the market for the best annuity, however finding an annuity can be a time consuming process which often means that many retirees simply opt to stay with the provider that they used to create their existing pension pot.
Different annuities often offer very different rates of income: “Pensioners could net themselves thousands of extra pounds simply by shopping around for an annuity. “Typically the difference between best and worst rates is around 20 per cent, but we have had clients tell us that the income we arranged for them was up to 60 per cent higher than what their pension provider had offered. That income is then paid year in year out for life” said Laith Khalaf, a pensions expert.
However, the Government is seeking to end this problem by overhauling the current annuity process, and they will challenge pension providers to explain why so many people retire with sub-par pensions. Mr Kalaf added that “The current system encourages people to tick a box and send it back to their pension provider, thereby potentially locking into a lower income for the rest of their lives. The Government is now looking at ways to steer people towards shopping around because ultimately it is in their best interests to do so.”
People should also be aware that there are other options that can be utilised instead of traditional pensions and annuities. QROPS and QNUPS pension transfers enable the holder to avoid buying an annuity, and also benefit from a number of bonuses including reduced tax implications. Learn more about offshore pensions transfers here.