Around 200,000 people buying an annuity this year could miss out on a combined retirement income in excess of £200m because of not shopping around for the best deal, MGM Advantage said yesterday.
According to Association of British Insurers' figures 50% of the 400,000 people a year who purchase an annuity do not search the market for the best deal. The consultancy's analysis of annuity data found that, based on the difference between the average and best annuity rates available on an average £40,000 pension pot, these people would be missing out on income worth over £237m in total over a 22-year retirement.
Andrew Tully, pensions technical director at MGM Advantage, said: 'Having saved hard for retirement, it seems a cruel blow to lock into an annuity with your pension provider unaware you could have shopped around the market to get the best rate.
'Our research shows there is an entrenched lack of awareness of the ability to shop around for not only the best annuity rate but also the most appropriate product for individual needs.'
MGM said that it believed the £237m figure could actually be on the conservative side, with a significant number of people who could qualify for a better annuity rate because of existing health or lifestyle conditions missing out on extra income. Only 4% of people last year bought an enhanced annuity from the provider their pension savings were with.
'The size of the prize is quite staggering as the numbers only relate to the number of people retiring this year. As the baby boomer bubble retires, more and more people will be looking to turn their pension savings into a retirement income using an annuity,' Tully said
A survey carried out by MGM last year found that 42% of over-55s had not heard of the open market option for annuities and the firm welcomed the ABI's code of conduct for annuities, which came into force at the start of this month. However, Tully added, its latest analysis showed that 'significant progress' still needed to be made.
