A new report from the Financial Conduct Authority, the UK's financial regulator, has found that retirees are failing to shop around for annuities and income drawdown products, something that could have a worrying impact on finances in later life.
The FCA's research looked at the impact of the pension reforms and their effect on consumer behaviour between July and September 2015. The report showed that many people were taking advantage of the new freedoms, with consumers accessing 178,990 pensions to take an income or cash during the three-month period – and many of them opted to take the money as cash.
The figures show that 120,969 pensions (68% of the total) were fully cashed out, with 88% of them being small pension pots valued at less than £30,000. The remaining 58,021 pensions (32%) were used to take an income (after the tax-free cash allowance) by using partial drawdown, partial Uncrystallised Fund Pension Lump Sum (UFPLS, which allows retirees to take a regular payment from their pension fund) or to buy an annuity.
However, bar the revelation that a lot of people are making the most of the new freedoms, the most significant finding – and arguably the most worrying – was the fact that far too few were shopping around when it came to choosing their retirement income product. In fact, the figures show that 58% of consumers who went into drawdown stayed with their existing pension provider, and 64% of those who bought an annuity did the same, which shows a clear lack of desire to look elsewhere.
This triggers alarm bells, said Richard Eagling, head of Pensions at Moneyfacts, with such "frightening statistics suggesting that in all of the excitement surrounding the new options individuals have forgotten the need to shop around for the best deal. This issue was highlighted years ago and should have been tackled long before the Government introduced its new package of reforms. Giving people more choice is fine, but if they are not selecting the best value products, then retirement outcomes will not be improved".
For some people, staying put may seem like the easiest solution, but it could also be the least cost-effective one. Annuity rates and drawdown products will vary according to different providers, and if you don't shop around, how can you be certain you're getting the best deal? If you're not, your income could suffer – potentially to the tune of hundreds, if not thousands, of pounds over the course of your retirement. So, don't be at risk of a poor retirement outcome: use our no-obligation annuity service to find the best deal for you.
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