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Pension freedom costs annuitants £765m

Andrew Tully, pensions technical director, Retirement Advantage
Unfortunately the pension freedoms have given people a licence to lose money, as half of those buying an annuity fail to shop around and get the best deal.
Andrew Tully, pensions technical director, Retirement Advantage
  • 50% of annuity customers stay with their current pension provider1
  • The cost of not shopping around for best deal costs consumers £765m2 in lost income

Retirement Advantage, the retirement specialist, has analysed industry data for the first two years of pension freedoms, and calculated that the number of people who have not shopped around for their annuity will collectively miss out on £765m of income over the course of retirement.

The calculation is based on the number of people who have bought an annuity since April 2015, of which 50% (or 90,450 people) did not shop around. Over the course of a 20 year retirement, the average annuity purchase will lose £8,460 of income simply because people did not get the best deal.

Andrew Tully, pensions technical director at Retirement Advantage, said: ‘Unfortunately the pension freedoms have given people a licence to lose money, as half of those buying an annuity fail to shop around and get the best deal. This situation has actually got worse since April 2015. Taking some simple steps at the start of the process can ensure you not only get the right annuity for your circumstances but can also make a big difference to the income you receive over the course of your retirement.

‘We shouldn’t lose sight of the issue of poor value and the lack of shopping around also extends to the drawdown market. While drawdown is not a one off purchase like an annuity, it is still important people look around for the right product, as you can easily find yourself caught out by high charges.

‘Seeking the right professional financial advice will ensure you not only buy the right product but get the best value for your personal circumstances.’

Top tips

1.Always shop around for the best annuity rate (as well as the right guarantees)

2.Consider the most suitable options for your circumstances, for example if you want income or a lump sum to go to your family after your death, or if you want income to increase to keep pace with inflation

3.Always tell your pension company if you have a health or lifestyle condition, for example diabetes or if you smoke. You will likely qualify for a higher income (through an enhanced/impaired annuity).

4.Get professional financial advice; the adviser will ensure you have the most appropriate annuity (or combination of annuity and drawdown) for your individual circumstances, as well as the most competitive rate.

5.Often people don't think they qualify for an enhanced rate, this is often because of the questions asked, so getting advice, and ideally, a telephone interview with the annuity provider, can improve the annuity rate.

6.Think about buying annuities in stages, rather than banking all your money on the rate available on one particular day; new retirement accounts provide the flexibility to do this simply and easily.

7.Remember you don’t need to choose either annuity or drawdown, a combination of the two may be the most suitable option

Between April 2015 and June 2017, around 180,900 annuities have been purchased, of which 50% of people failed to shop around (90,450 annuities). Using the average value of an annuity purchase (£55,700), the difference between the average standard rate (£2,740 a year) and average enhanced rate (£3,163 a year) equates to £423 a year, or £8,460 over a 20 year retirement.



  1. Source: Retirement Advantage. ABI data shows that 50% of annuity customers shop around for their retirement income -
  2. Retirement Advantage Annuity Index calculates the average and best open market rates for a 65-year old, nil guarantees, nil spouse benefits, monthly in arrears. Comparison between average standard annuity and average enhanced annuity rates, between April 2015 and June 2017.