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The perils of ignoring annuity options

The perils of ignoring annuity options

Category: Pensions

Updated: 11/06/2010
First Published: 11/06/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Retirees have been told they must spread their net far and wide in the search for the best annuity rates.

Millions of UK pensioners are on a collision course for an impoverished retirement, according to new research from Partnership, with many likely to have to live on an income of around £8K per year.

Firstly, people are not saving up big enough pension pots during their working lives.

This is then compounded as the majority of people fail to shop around for the best annuity rate when selecting their annuity provider.

Around nine in ten annuities purchased over the past six years have been for less than £50K, while around three quarters have been for less than £30K.

At current annuity rates, a pension pot of £30K will provide an annual income of £2K, the equivalent of around £40 per week.

Coupled with the average state pension of just under £6K per year, it is feared many pensioners could struggle to make ends meet.

Around two-thirds (62%) of people who bought an annuity last year decided to purchase it from their existing pension provider, potentially missing out on better annuity rates from providers elsewhere in the market.

Furthermore, the research found that 40% of the population could qualify for an enhanced annuity, which pays out more because the retiree suffers from a specific medical condition.

Yet just 10% of all annuities sold in the UK are enhanced.

"The figures demonstrate that, put simply, people are not investing anywhere near enough for their retirement years," said Philip Brown, Partnership's head of retirement products.

"Furthermore, the majority of people are not bothering to look outside of their pension provider for the best annuity deal on the market.

"This effectively means that millions of people are denying themselves a higher income in retirement."

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