‘Welcome extra boost’ Britons urged to see if they can get an ‘easy to secure’ extra £500
Expert reveals tips on how to save for retirement
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Customers who already have a direct relationship with a provider would need £600 additional income a year in order to switch. However, customers who are already planning to shop around for their annuity are more likely to accept an extra income of £350 a year.
Canada Life arrived at these conclusions by analysing the price point at which customers planning to buy an annuity would consider switching pension providers.
Overall, the data shows that the value of a customer’s pension does not greatly impact their decision to switch.
Nick Flynn, director of retirement income at Canada Life expressed:
“For those who choose to shop around for their annuity, it can be easy to secure an extra £500 a year, or even more. Simply disclosing all lifestyle and medical information can lead to a welcome extra boost to your annual income, adding significant value over time.”
“Over a typical retirement period of 20 year, that extra £500 would equate to £10,000 additional income at no additional expense. Quite simply this is ‘free’ money”.
Canada Life research also suggests around two-thirds of Defined Contribution (DC) pension plan customers who haven’t taken an income from it and intend to buy an annuity with at least some of their fund plan to seek advice from an adviser or shop around themselves before purchasing an annuity.
A further 18 percent intend to set up their retirement income directly with their pension provider without the guidance of Pension Wise or the advice of a regulated financial adviser.
Certainly, annuities form a valuable part of retirement plans for individuals across the UK.
Sales before the pandemic were low with retirement income data from the Financial Conduct Authority (FCA) showing that while 674,000 people accessed their pension pots for the first time between April 2019 to March 2020, annuity purchases still declined by six per cent, with just 69,500 policies sold.
Yet, the latest figures from the Association of British insurers show that the numbers of people buying an annuity increased by 41 percent between April and September 2021.
Sweeping reforms introduced in 2015 made it easier for retirees to keep their pension pots invested and draw down a variable income from them for the rest of their lives.
Prior to this, people generally had to use their DC savings to purchase an annuity to provide them with a regular retirement income.
The Government lifted some of the restrictions on accessing retirement savings, creating a more flexible market with greater choice of products.
This decision was supported by a 2014 report from the FCA which concluded that people were missing out on better outcomes by an average of 6.8 percent of potential annuity income by not shopping around between providers.
An annuity provides a person with a regular guaranteed income in retirement.
People can buy one with some or all of their pension pot.
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It pays income either for life or for an agreed number of years.
When a person uses money from their pension pot to buy an annuity, they can take up to 25 percent of the amount as tax-free cash.
They can then use the rest to buy the annuity and the income they get is taxed as earnings.
Annuities are sold by insurance companies.
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