Shop around for pension annuity
The recession has resulted in Britons becoming increasingly canny when it comes to negotiating the cost of major purchases, but they could be losing out on thousands of pounds by not shopping around as they approach retirement, according to a survey by MGM Advantage.
The findings, which form part of the second MGM Advantage Retirement Nation survey, reveal that almost half (49%) of Brits haggle and shop around in search of bargains when buying big ticket items such as houses, cars and even household furniture and furnishings. However, the retirement income specialist warns that just one in ten people surveyed would search around for the best price when they convert their pension into an annuity providing income throughout retirement.
According to MGM Advantage, less than one in five adults are aware of the so called Open Market Option (OMO), which allows those nearing retirement to shop around for their pension annuity.
Analysis of annuity rates by MGM Advantage reveals that a woman with a £50,000 pension pot, who lived for 20 years after retirement, could be around £11,000 better off by shopping around for a top quartile standard annuity compared to one in the bottom quartile. The same individual could be a further £4,000 better off if they found that they were entitled to an enhanced annuity and shopped around for the best deal.
Aston Goodey, Director of Sales & Marketing at MGM Advantage said: "It's a real concern that we are all so comfortable haggling over the price of a car or new sofa but so reluctant to look around or to negotiate over the price of a pension annuity. This is particularly worrying as you only have one chance in your life to shop around for the best possible annuity, but failing to do so could mean a difference of hundreds of pounds a month, and in some cases could even tip pensioners into poverty.
"We believe that many people close to retirement simply don't realise that they can shop around for the best annuity rate and increase their retirement income by such a significant amount of money. For instance, last year over 60% of people buying an annuity chose the one offered to them by their existing pension provider. Shopping around is easy to do, especially with the help of a financial adviser."
MGM Advantage says that a huge proportion of people approaching retirement are simply not prepared for life after work and do not realise the possible scale of the drop in income they might experience. Its research shows that 32 per cent of over 55s are ‘not prepared at all' for retirement with a further 35 per cent admitting to having done nothing whatsoever to prepare for life after work.
The Retirement Nation survey reveals that women (52%) spend more time haggling and negotiating than men (41%) and that Londoners top the table (59%) compared to just 32% of people from Northern Ireland being comfortable doing this.