4-in-10 people still not shopping around for the best annuity rate

07 November 2024

Worrying new data shows that 41% of people buying an annuity source it from their existing pension scheme rather than shopping around providers. That could mean that thousands of people are still missing out on higher income.

As reported by Corporate Adviser, IFA Magazine and MoneyWeek, Financial Conduct Authority (FCA) data for the financial year 2023/24 raises concerns that many retirees may be choosing convenience rather than value. 

Why is ‘shopping around’ for an annuity recommended?

As you approach 55, your pension scheme may send you quotations for annuities. These might be for annuities they provide, or for annuity products from a provider they work with. 

Although it is arguably easier to accept the first annuity deal on offer, shopping around leading providers may lead to a better annuity rate. This would mean you enjoy more lifetime or fixed-term income from your annuity.

Shopping around is known as exercising your Open Market Option to ensure you secure the highest annuity income from your pension savings. As well as potentially leading to more income, shopping around lets you compare different annuity product types, features and options.

Choosing the first annuity deal offered to you instead of looking at what other providers offer can be a costly mistake. For example, research by Just Group shows a difference between the worst and best annuity rate for a 65-year-old with a pension pot of £100,000 is £666 a year. That’s a £13,320 difference across a 20-year period.

Nick Flynn of Canada Life (quoted in MoneyWeek) says: “Never simply accept the offer from your existing pension company, as you may not always get the best deal. Shopping around for the best deals on car insurance, securing the best mortgage rate or getting a great deal on the high street is now commonplace, and so should be getting the best deal from your hard-earned savings.”

Although our suggestion would be to always look at other annuity rates on offer, sometimes you will get the best deal from your current pension scheme. In particular, some older pension schemes offer a guaranteed annuity rate (GAR). This could be higher than the best rates from today’s annuity market. Always check whether your pension scheme offers a GAR or other benefits that would make taking the annuity they offer the best choice.

An ongoing problem

The issue of people failing to secure the best annuity rate and most suitable product is unfortunately not a new one. In its Retirement Income Market Study published back in March 2015, the FCA said: “Many consumers are missing out by not shopping around for an annuity and switching providers, and some do not purchase the best annuity for their circumstances.”

Since then, the FCA has ensured that pension schemes provide better information to scheme members about their income options. Schemes should send their members ‘wake-up packs’ that include information about the possibility of better annuity rates from across the annuity market.

Despite the implementation of such measures, the latest FCA data shows that too many people are still not using their open market option to compare annuity rates, products and providers. 

How to shop around for the best annuity deal

If you have a pension pot you’d like to access for guaranteed retirement income from an annuity, you can ask a financial adviser or annuity broker to shop around providers on your behalf. 

Retirement Line’s annuity service for example includes comparing annuities from Aviva, Canada Life, Just, Legal & General, LV=, Scottish Widows and Standard Life. Thanks to our position as the UK’s largest annuity broker*, you also benefit from the preferential rates we achieve.

Our Annuity Specialists also provide comprehensive information to help you choose the annuity that best meets your needs. Then, our administrators liaise with your pension scheme and chosen annuity provider until your annuity is in place.

To find out more, call our team of Annuity Specialists today on 0800 652 1316 or request a call back. You can also use our free annuity calculator to see how much income you could secure with an annuity.

Click here for your free, no-obligation annuity quote

Sources:

Just Group analysis of difference between worst and best annuity rate: : Retirees lose out on £13,000 by not shopping around for best annuity deal. MoneyWeek. Accessed 7 October 2024.

Nick Flynn of Canada Life quote: Retirees lose out on £13,000 by not shopping around for best annuity deal. MoneyWeek. Accessed 7 October 2024.

FCA annuity market findings, 2015: Retirement Income Market Study. Financial Conduct Authority. Accessed 7 October 2024.