With the financial services industry focusing on encouraging people to shop around for their annuity, Partnership undertook consumer research to test the understanding of people between the ages of 45 and 65. While the majority of people (60%) correctly deduced that gender had no impact on annuity income and 50% realised that they would receive more if they retired later, a real lack of understanding about other key aspects of these policies was revealed.
Indeed, just 13% realised that by taking an annuity with their existing pension provider, they risked reducing the amount of income they get from their annuity and only 17% understood that if they smoked or were overweight they could potentially get more. Relatively few people also realised that if they were in ill health or had a medical condition, they could get more from their pension pot (36%) or that due to post code pricing, living in a nice area may mean a lower income from their annuity (8%).
While arguably, you don’t have to take out a joint annuity if you are married but if you choose to do so you will get a lower income and only 12% of people agreed that being married could reduce the amount of income you receive.
Andrew Megson, Managing Director of Retirement at Partnership, said:
“For most people, choosing an annuity is one of the biggest financial decisions of their lives as they will be setting their income for their retirement. Therefore, it is extremely worrying to see that most people simply assume that staying with their existing pension provider will have no impact on the amount they receive.
“For people with medical or lifestyle conditions, the impact of not shopping around is likely to be even more devastating as an increase of 20% in excess of a standard annuity would be reasonably typical for one of our 65-year old customers and, for severe conditions, could be considerably more.
“This research suggests that we need to work harder as an industry to encourage people to actively consider their options rather than simply taking what is offered. Whether people choose to speak to various providers themselves, work with an intermediary or use a comparison service is their choice but it is vital that they do something or risk receiving significantly less than they hoped.“