People are being offered lower annuity rates than are available to those 5 years younger (Image: Getty)
Pensioners who do not search the market for the best deals could lose around £71 a year or £1,500 over 20 years, an expert has warned.
Shopping around ensures retirees do not end up with a lower retirement income than those five years younger, according to provider Just Group.
Just Group found that despite having a lower remaining lifespan, rates on offer to a 70-year-old were not automatically better than those available to a 65-year-old.
Retirees using their pension funds to buy an are being reminded to shop around for the best deal and not take it for granted that their pension provider is offering them the best rate.
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Annuities work like insurance products, so when a pensioner cashes in their pension savings to buy an annuity they are buying a secure income for the rest of their life, no matter how long they live.
The older you are when you buy an annuity the better deal you normally get, because the insurance company is not expecting you to live as long.
The same applies to anyone with a long-term, life-limiting health condition. They can take advantage of impaired life annuities which also offer better value for money.
But Just Group found that in some cases people are being offered lower rates than are available to those five years younger.
It found a 70-year-old with a £50,000 pension fund who did not shop around and whose pension provider was offering the least competitive dal would get £3,560 a year.
This is £71 a year less than the current best deal on offer to a 65-year-old. The worst deal for a 75-year-old is £4,024 which is £39 a year less than the best deal for a 70-year-old.
Over 20 years this can add up to over £1,400, or more.
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Stephen Lowe, group communications director at Just Group said: “Our research reinforces the importance of retirees shopping around for the best rate when buying a guaranteed income for life.
“You may have saved with your current pension provider for years but that is no guarantee that they will offer you a competitive rate. In some cases, retirees are being offered rates that deliver less income than people five years younger can secure.
“Annuities give people peace of mind to spend what they receive without worrying it will run out during their lifetime. But you have to get the choice right first time – finding the deal that will deliver the best income. That means shopping around and disclosing health and lifestyle information that could push up the rate.”
He said all retirees should take the free, independent and impartial guidance from the government backed Pension Wise service. Professional annuity brokers or financial advisers can help retirees choose options and scour the market for the best deal.
What is an annuity?
An annuity is an insurance-backed income plan that pays out a set income each month (or annually). You will normally be offered the chance to buy an annuity when you take your pension.
After taking 25 % as tax free cash, you are cashing in the rest of your pension, rather than keeping it invested in more risky stocks and shares..
Annuity providers offer different rates. Most pension providers also offer annuities but pensioners are being advised to choose the ‘open market option’ which means shopping around for the best deal.
More advice on annuities and the open market option is available via the government’s Money Helper and Pension Wise websites
https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise