Why you MUST shop around for your annuity

It’s a one-time purchase that affects your whole retirement, and you cannot change your mind later. So why on earth would you take the first one you’re offered? Most people are doing just that – and missing out on thousands of pounds.

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Annuities are like the prog rock of pension planning: deeply unfashionable, and they go on and on for the rest of your life. Once the default option for most people in retirement, they are suddenly playing second fiddle to the seemingly more pop-tastic options available now, such as drawdown and lump sums. Still, there is no denying the attraction of a guaranteed income for life. As a no-hassle ‘fire and forget’ solution, some people will always prefer an annuity.

But amid the hype over the increased choice now available, many people are making a big mistake. All they are seeing is the straight choice: take an annuity, or take one of the alternatives. It’s actually a lot less simple than that.

Don’t forget the OTHER choices you have

There’s annuities, and there’s annuities. Over the course of a retirement, even small differences between them can become huge. Over 20 years, the best standard annuity rate currently available will pay you over £4,000 more than the average1 (note: not the worst!) – and remember, there’s a one-in-two chance of any randomly-chosen annuity being below average. The gap gets wider and wider the longer you live.

Yet here’s a shocking thing: according to the same research, 60 per cent of people who have chosen an annuity since the start of pension freedom took the one offered by their current pension provider, instead of shopping around. It seems that people are going one of two ways: either shunning annuities altogether, or sticking with the first annuity they see. Collectively pensioners are missing out on hundreds of millions of pounds just by failing to look for the annuities with better rates.

An annuity is not a pair of socks

Most people take more time choosing their Christmas shopping than they take over choosing their income for the rest of their life. Don’t be one of them. Not only are there more pension choices now, there are also many choices within those choices. Whether you choose an annuity or a drawdown scheme, you can shop around for the best deals on both, and the differences are in no way cosmetic – they can translate into being thousands of pounds better off.

The surest way to find the best annuity available to you is to speak to an independent financial adviser. Based on the differences between the average and best available rates, this would save you at least four times more than the cost of the advice itself (according to research by unbiased.co.uk into the cost of financial advice).

Talk to an adviser about your pension options and ask about shopping around for the best deals – it really makes a big difference. A good way to get started is with a pension check-up so you know in advance what you can afford. Book a free pension check today and you’ll receive £50 off the cost of any follow-up advice.

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  1. 2015 research by Retirement Advantage and the Association of British Insurers.