Pension savers at retirement are not getting the best value, and that’s why it’s important to shop around for the best UK pension annuity rates. These savers are not getting the best value out of their workplace pension schemes simply because they are not getting enough information about their options, according to the Pensions Regulator. In a recent report on the information sent out to these savers coming up to retirement, the Pensions Regulator found much of the insurance company literature is not up to scratch, and retirees may be missing out as a result.
According to the report, just 23% of employees saving into a direct contribution (DC) pension arrangement (trust-based) through their work took advantage of the open market option (OMO), despite evidence shopping around for the best UK annuity rates could secure a much better pension. It’s not just trust-based schemes that are an issue here. In 2008, just over 33% of those taking an annuity exercised their right to purchase it using their OMO. This failure to shop around means thousands of retirees could be much worse off in retirement, as there is no altering permissible once you have made the final decision. Malcolm McClean, chief executive of The Pension Advisory Service (TPAS), says that people spend 30 to 40 years saving in a pension scheme and then blow it at the last minute by not taking the right annuity.
Once you have six months to go until your retirement, the company looking after your pension fund will write to you with a lot of (perhaps complicated) information on what to do next. This means choosing a product that will turn your pension fund into an income for the rest of your life, usually by buying an annuity. Usually, the pensions provider you have been saving with will also offer you a quote. But you also have the right to shop around using the OMO for a better deal, as rates differ between UK annuity rates providers. Your pension provider has to mention this (clearly) in the reminder document it sends to you when you are approaching retirement. However, Mr McClean is concerned that on occasions this choice is not made clear enough.
Shopping around for a better deal can net retirees a better income for their hard-saved cash, with some experts suggesting that most people will benefit by 10%, and a lot will benefit by 20% to 40%. Unfortunately, once you have bought your pension annuity there is no switching allowed, so there is no room for regrets afterwards. However, a reluctance on the part of insurance companies to encourage their customers to check out their rivals is not the only problem. The Financial Services Authority (FSA) has spelt out to these insurers that they have to encourage people to shop around for the best UK annuity rates for their circumstances, and so has the Association of British Insurers (ABI), so there is pressure on the insurance companies to improve communications with their customers. But with the best will in the world, some retirees will just not listen.
