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Confusion reigns over annuities

24th November 2008 Print
Just Retirement, the specialist retirement solutions provider, has revealed the scale of the challenge facing the retirement industry with the launch of a new study which shows that 73% of those at retirement age do not properly understand what an annuity is, while 4 in 5 retirees (79%) have never heard of the Open Market Option (OMO).

As the UK hovers on the brink of recession, the financial pressures on retirees seem only set to increase, with rising fuel costs and food inflation at 20%. Shopping around for an annuity could be one of the best ways of improving retirement for many thousands of today's pressured retirees. For many, the one-off purchase of an annuity could well be their biggest financial undertaking and shopping around for a better income from their personal arrangements is every retiree's right. Yet over half (59%) of those who said they understand what an annuity is were actually incorrect when asked to select a statement that explained what an annuity is.

Despite efforts by the FSA to improve the information consumers receive when they come to purchase an annuity, and Just Retirement's own Campaign for Better Annuities, the research reveals a real knowledge gap and the work needed to educate those approaching retirement about annuities. Just Retirement today calls on the industry, the FSA and the government to get ‘back to basics' and make a concerted effort to change this situation for the better, forever. By having greater understanding, annuitants will be far better placed to shop around and make the most of their income. For example, Just Retirement calculated that last year, annuitants missed out on £500 million worth of extra income by not shopping around. This extra money would only be good news for retirees, providers and UK plc.

David Cooper, Marketing and Distribution Director at Just Retirement comments: "Awareness of annuities and the Open Market Option is something about which retirees need more and better information. With the current economic climate looking uncertain, people need to do everything they can to maximise their pension and ensure that they are receiving the best possible deal. It is shocking to learn that well over two thirds of Britons at retirement age do not understand what an annuity is, with 28% never having even heard of the term. Furthermore nearly 80% are unaware of their right to exercise the Open market Option."

"With knowledge levels this low it unsurprising that so many people end up purchasing an annuity through their provider without being aware they can go elsewhere for a better deal" concludes Cooper".

Just Retirement launched its Campaign for Better Annuities in 2007 to campaign for better steps to be taken to ensure retirees are fully aware of their options and rights. So far nearly 5,500 IFAs have signed up to the campaign.

To access the Campaign for Better Annuities site, please go to: justretirement.com/betterannuities