15 years with profits down the pan

Just Retirement claims that failing to investigate an enhanced annuity at retirement could be equivalent to throwing away 15 years of extra fund performance.

Recently produced individual pension results from Money Management show the average maturity value of With-Profits pensions was £56,518 in the 15 years to 1st January 2007. The top performing policy produced £77,130: 36% more than the average. And yet, failing to claim an enhancement could mean that even a client in the best performing plan could end up little better off than someone in an average fund.

Peter Ellis, Head of Annuities at Just Retirement, points out that a standard annuity as low as £4,900 per year could be bought with a fund of £77,130, according to the FSA tables, whereas a fund of £56,518 could obtain an enhanced rate of slightly more: £4,934.

Thus, the benefit of selecting a good provider pre-retirement could be completely lost at the point of retirement. This is equivalent to throwing away 3.8% per year in extra performance: something nobody would be happy about.

Viewed from a different angle, of course, selection of the best pension provider pre-retirement and an enhanced annuity at retirement could result in an increase of 73% in the final pension. At a time of grave concern about pension shortfalls, this highlights the value that can be added by advisers at all stages of the pension planning process.