Retirees miss out on £1.25 billion in pension benefits

Failure to seek professional advice to help understand how health can positively influence annuity rates is costing British retirees £1.25 billion worth of pension benefits every year, according to new research by Partnership, the specialist provider of ill-health financial solutions for retirement and long term care.

Partnership estimates that one in two UK retirees could qualify for a better annuity rate because of medical complaints, yet the research reveals that half of people over 50 who suffer poor health are not aware their medical condition could entitle them to a greater annuity in retirement – potentially costing them over £20,000 during the course of their retirement, and in some cases much more.

In addition, despite the introduction of the Open Market Option (OMO) five years ago, the research indicates that 75 per cent of people nearing retirement have no idea what the OMO is, and almost three in five (58 per cent) of those already retired failed to take advantage of it.

Partnership surveyed a GB representative sample of 3,000 retired or nearly retired people to establish how many suffer poor health, and how many are aware that their health can positively enhance their annuity rates. Key findings include:

Despite the potential gains from exercising their OMO, almost eight in ten (79 per cent) fifty year olds suffering poor health have no idea they can shop around on the open market

More than eight in ten (87 per cent) poor health pensioners who switched provider were able to purchase a greater monthly annuity as a result

Over half (51 per cent) of those people suffering diabetes and other persistent but non-life threatening illnesses were not aware of the OMO, and 16 per cent didn’t think switching would derive any financial benefit

Almost one in five (19 per cent) people suffering a chronic, life-threatening illness didn’t believe there to be a financial benefit to shopping around for an impaired annuity product.

Ian Owen, Chairman, Partnership, says: “It’s a fact that we are living longer in retirement than ever before but lower annuity rates mean people have to save a lot more to get the same level of income in retirement. The majority of retirees can enhance their retirement income simply by shopping around, and this is particularly true if they are amongst the many people who suffer from everyday medical complaints that would qualify them for an enhanced product, where the financial uplift would be even greater.

With more than 40 per cent of people suffering from poor health, there is a huge potential market for health based annuity products for the adviser and a real opportunity for the adviser community to demonstrate real added value; the Open Market Option doesn’t cost anything and can often deliver a considerably higher annuity rate – a win-win situation for both adviser and retiree.”