People purchasing annuities could be missing out on more than £400 a year by failing to shop around, findings reveal.
More than a third of those aged over 50 or over who got an annuity in the last four years said they purchased it from the same provider they saved with, according to financial services firm Just Group.
And a similar number surveyed also admitted they did not compare rates between different providers when they purchased an annuity.
The gulf between the best and worst-paying annuities has widened and the rates on offer have increased in recent years, making it all the more important to shop around.
What’s more, people buying an annuity may not always have to plump for the standard advertised rates on offer.
In some cases, annuity rates can be tailored to an individual’s health and lifestyle and could be higher than the standard offering.
Don’t miss out: People purchasing annuities could be missing out on more than £400 a year by failing to shop around
However, three quarters of adults aged between 50 to 69 planning to access their defined contribution pension in the next two years said they were not aware that certain health conditions could increase their annuity income.
Annuity rates have increased sharply in recent years due to rising gilt yields caused by persistent inflation, potential tariff policies and delays in anticipated interest rate cuts.
According to Hargreaves Lansdown’s annuity search engine in April, a 65-year-old with a £100,000 pension can get up to £7,882 per year from a single life level annuity with a five-year guarantee. This is 63 per cent higher than the sum available five years ago, it said.
‘These increases are welcome news for anyone in the market for a guaranteed income in retirement and have contributed to a real revival in a market that was once considered on the edge of extinction.
Last year was a bumper one for the annuity market and current rates will continue to fuel interest’, Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said.
Stephen Lowe, group communications director at Just Group, said: ‘Higher rates on guaranteed income for life products have increased customer interest but there are still too many “zombie buyers” who are not shopping around to get the best annuity deals available.
‘Over the course of an entire retirement, a saver failing to shop around could be missing out on thousands of pounds of extra income – the closest thing in the financial world to being given “free money.”
‘Anyone considering purchasing an annuity should shop around the open market and ensure they disclose information on health and lifestyle factors to make sure they get a personalised rate – all of which will help them secure the best rate on offer to them.’
Government-backed Pension Wise provides information on annuity purchases, while annuity brokers or financial advisers can also help people select a provider. There are also various online annuity rate comparison tools and pages available to browse for free.
Just Group’s data was based on the Financial Conduct Authority’s Financial Lives Survey 2024, of nearly 2,000 people, published last month.
An annuity is where you use your pension pot to buy an income that lasts for a fixed period of time or for the rest of your life.
Annuities were shunned for years due to poor rates and restrictive conditions, and after gaining a bad reputation on the back of annuity mis-selling scandals. Better rates have, however, prompted something of a resurgence.
Most people who buy an annuity opt for a version that pays out the same amount year after year.
However, some people opt for an annuity that has inflation protection built in.
This type of annuity pays out a smaller monthly sum at first, but that increases over time in line with the cost of living.
It is also possible to purchase a series of annuities throughout your retirement.
Annuities are a large and long-term purchases. They should not be purchased on a whim and without doing adequate research about the pros and cons involved beforehand.
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