Getting the best annuity rates is vital if you want to maximise your retirement income. Would you believe however that the amount of annuitants that use the open market option has fallen to 34% in 2009, down from 39% two years ago. Pension experts have estimated that UK pensioners could be losing out an aggregate total of £13.9 billion per year, the equivalent of £169 for each annuitant. This lack of “shopping around for the best rate” is driven by an obvious lack of understanding by those approaching retirement with a defined contributions pension pot. Whilst there is limited understanding of how an annuity works, there is even less awareness of the different types of annuity on the market in the UK (For a list of the main types of annuity on offer, check out our pension options page).
Annuities are a mystery to most, as the majority of people don’t think about them until they approach retirement. They can often be complex, making the desire to shop around even less appealing.
The problem for many is that is can be costly to seek Independent Financial Advice. The easy option appears to be take the offer from your current provider, although they are obliged to state in your pre retirement pack that there are other options open to you in retirement. It is rarely in their own financial interest for annuitants to exercise the open market option, unless they have a very small pension pot,meaning providers have no incentive to direct annuitants to alternative providers. And as people generally go with what they are familiar with (especially when it comes to financial matters), the take up of the first offer annuitants receive is very high.
The key is to look what is around, and that may not involve paying for Independent Financial Advice, just read up on the internet about what options may be available. Many annuity brokers can talk you through what is available without you having to pay for professional advice.
