Despite a rise in the amount of savings invested in annuities over the last year, 60% of consumers are failing to use the Open Market Option.
According to the Bank of Scotland Annuity Service (BOSAS), in the third quarter of 2006 more pension savings than in any other quarter over the last six years were rolled into annuities or income drawdown.
It says figures from the Association of British Insurers (ABI) reveal in annuities alone the amount of savings invested has risen from £2bn in the third quarter of 2005 to £2.8bn by the same time this year.
Kevin Pacey, head of BOSAS, says this trend can be down to a number of factors such as people waiting for the A-Day changes to take effect so they can take 25% tax-free cash.
In addition, he says over the last 20 years there has been more of a focus on saving for retirement, leading to more people having pension savings which are starting to mature, although he points out the fact the ‘baby boomer’ population is moving into retirement is also starting to have an effect.
Pacey says recent figures show there has been significant growth in both the number of people taking annuities and the size of the pension being rolled into an annuity, but warns more people need to shop around.
He claims 60% of pension holders opt to buy an annuity from their current pension provider, and as a result are losing up to 11% less annual income on a conventional annuity, and up to 43% less income on an enhanced annuity.
For example, Pacey reveals those who qualify for an impaired life annuity can earn up to 43% more, which from a £100,000 funds could result in an extra £2,790 a year, when compared to a level 5 year guarantee annuity.
He adds: ““Two out of three UK retirees are still not shopping around for their annuity and are forfeiting potentially thousands of pounds in annual income. The main message here is to shop around for your annuity and use the whole of market option to get the best possible rate.”
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From 6 April 2019