More work has been done to try and establish how much retirees could be losing out on in terms of their pension annuity retirement income because of the system we have with annuities in the UK. Figures have been released from a leading annuity player suggesting that retirees could be losing out on five years’ cash. Why? Because they are consistently failing to access the best annuity rate available to them at retirement.
This research has concluded that some losses equate to wiping out more than five years of income in retirement, perhaps more than £37,000.
Currently only 40% of retirees shop around for the best annuity rate, otherwise known as exercising their Open Market Option (OMO). Experts say that the OMO should be the default option to help savers secure a wealthier retirement and that in its current state, the system is merely designed to line the pockets of insurers.
The current regime routinely leaves investors out of pocket and is plainly not fit for purpose. Some say it needs to be scrapped immediately and replaced with a fairer, clearer system that will benefit the hundreds of thousands of individuals retiring each year.
Losses suffered by taking the pension providers annuity offer and not shopping around can be sizeable. Example: a woman retiring at age 60, with a £100,000 pension pot, expected to live to 88. The difference between the best and worst annuity deals, at £6,708 and £5,366 per annum respectively based on current annuity rates, would equate to an annual loss of £1,342, or an average lifetime loss of £37,576, more than five year’s extra income.
This is only an example, but does illustrate clearly the value of shopping around utilising the OMO, particularly if even higher annuity rates could be gained from an enhanced annuity or impaired life annuity if the retiree has a lifestyle or medical condition.
