Poor pension choices mean ‘years longer’ at work - Annuities - News - Moneyfacts


Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Poor pension choices mean ‘years longer’ at work

Poor pension choices mean ‘years longer’ at work

Category: Annuities

Updated: 05/10/2012
First Published: 09/02/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

High pension charges and buying the wrong annuity could cut savers' potential retirement income and mean spending more years working to cover the loss.

In fact, savers who do not get the best deal from charges and annuities could end up working into their early 70s, a report for the National Association of Pension Funds (NAPF) by the Pensions Policy Institute (PPI) has found.

Charges for stakeholder pensions - a common type of workplace pension - are capped by law at 1.5% for the first ten years, then 1% thereafter.

But by an employer negotiating a pension with the long-term 0.3% rate offered by some major providers, a saver could increase their income in retirement by 17%.

People who are stuck with the higher charges would need to work three years longer to get the same pension as those who benefited from a pension with charges of 0.3%.

The report also showed that converting a pension pot into an income using the lowest rate quoted on open market tables rather than the 'best buy' could reduce pension income by 12%.

To make up for this loss people would have to retire two years later than if they had picked the best rate. Unfortunately, around a third of people fail to shop around for the best annuity.

"People are not powerless when it comes to their pension. By making the right moves they can get a lot more for their money without having to pay any more in," said Joanne Segars, NAPF chief executive.

"High charges can eat away at a savings pot and both workers and employers should try to keep them down. The annuity system can seem complicated but savers can help themselves by shopping around to get the best possible annuity rate.

"People who don't get the best out of their pension could end up stuck at work for years longer than they planned. Getting a good deal on charges and annuities can mean the difference between enjoying retirement and spending years more at the desk."

Earlier this week, NAPF and the PPI called the existing annuity system 'bewildering' and 'unfair', and called on the Government and the retirement industry to work together to make the market fairer.

Research found that people are not getting sufficient annuity advice on how best to choose an annuity, despite it being one of the most important financial decisions people make during their lifetime.

Often, people get nothing more than a leaflet pointing them to a website with a postcode-based search engine.

There is also a widespread lack of knowledge about different annuity options, such as enhanced annuity products designed to maximise income for people with health problems.

What Next?

Learn about your annuity options

For help or to compare annuity quotes online call the Moneyfacts Annuity Service:
01737 233435

Looking for the best income in retirement from your pension annuity? We can help.

Learn about your equity release options

01737 233462

Find an old pension – contact the Pensions Tracing Service on 0845 600 2537

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Want an annuity? Your provider will help you pick

Buying an annuity can be fraught with difficulty, but what if you still want a guaranteed income? The regulator is stepping in, so it should soon be easier to find the annuity that meets your needs – because your provider is going to help.

Annuity rates rally after tough few months

Good news for those seeking a secure income in retirement: our latest analysis has revealed that annuity rates are staging a mini revival after suffering from heavy falls in recent months, so you’ll now be able to get slightly more from your savings.

Secondary annuity market scrapped

The Government is cancelling plans for a secondary annuity market, citing concerns about consumer protection. Given there were fears that many could be ripped off – and that it wouldn’t be right for most – the decision has been largely welcomed.