28th May 2015
With complaints about annuities rising swiftly retirees are being urged to ensure they shop around to get the best value possible from their nest-egg.
The Financial Ombudsman Service annual review, published in May revealed that the number of annuity complaints it received has rocketed by 29% in the past year.
It said that it has seen an increase in the number of complaints from consumers who feel they have not been made aware of their option to shop around for the best annuity rate or the existence of enhanced annuities by their pension provider.
Retirement firm, My Pension Expert, has urged those looking to swap their pension pot for an annuity to check all the options available to them as by not doing so could cost them dearly during the course of their retirement.
Using the example of a healthy 65 year-old with a pension pot of £100,000, the group highlighted that there is currently a £870 difference between the best and worst annuity offers available, with the top quote coming in at £5,585 and the worst at £4,715. Someone going for the poorer deal, over an average 20-year retirement would be missing out on an additional £17,400, or 17% of income.
The difference becomes greater still if the same 65 year-old is eligible for an enhanced annuity by virtue of smoking 10 cigarettes daily, exceeding the weekly recommended consumption of alcohol and having high blood pressure. The difference between the best and worst annuity offer becomes £1,853, with the top quote £6,568 and the worst £4,715. That translates to a potential extra £37,060, or 37% income during an average 20-year retirement that could be lost by not shopping around.
Scott Mullen, director at My Pension Expert said: “Following the pension freedoms retirees have been presented with more options than ever as to how they use their pension pots. However for those that seek a secure income for life an annuity will in most cases still be the ideal product and that’s why shopping around is just as vital as it has ever been.
“The additional income that can be gained from doing so is staggering which is why it is alarming to see an increase in the number of people complaining that they were not made aware of their option to do so. Clearly more needs to be done to raise awareness as the extra income that can be gained from shopping around for an annuity can go a long way towards vastly improving the standard of living of a retiree.”