Don’t miss out on a better retirement income
Thousands of people could be missing out on a better retirement income because of an illogical approach to shopping around for the best deals.
According to retirement specialist Aviva, while people are used to comparing prices for routine items like food and holidays, the same logic is not always applied to annuities - potentially a much more valuable purchase.
On average, UK adults now spend a whopping 42 hours a year shopping around for a holiday, to pocket a saving of £280, and 32 hours comparing prices on food and drink, achieving a further saving of £185. However, Aviva data suggests that over 40% of people do not spend any time comparing deals from annuity providers - which could potentially mean losing out on thousands of pounds over a lifetime. This seems irrational when considering how easy it can be to shop around for a better retirement income.
The tendency to shop around is at its peak during youth, declines as people grow older, but rises again as retirement draws near. However, this logic in later life doesn't seem to apply when it comes to buying annuities, even though many individuals could boost their retirement income.
Two thirds (66%) of consumers are unaware they can compare pension providers and potentially increase their annual income, despite the open market option (OMO), which is available to everyone purchasing an annuity.
The research also examined how certain factors such as salary, personal debt and experience of redundancy, affects shopping around.
High earners with a household income of over £60,000 are most likely to shop around to get the best value. However, this behaviour stops at retirement with only 8% seeing any advantage in shopping around for an annuity.
Consumers in debt demonstrate better buying behaviour, as seven in ten (72%) of those owing £5,000+ feel greater financial pressure to do so.
Worryingly, those who have personally experienced redundancy are no more inclined to invest time shopping around for value. Seven percent of this group claim that they do not see any benefit in shopping around for a retirement income and over a fifth (21%) say they will not bother when the time comes.
Clive Bolton, ‘at retirement' director for Aviva said: "Shopping around for an annuity may not be as much fun as shopping around for a holiday, but the benefits will certainly last longer. Our findings show that despite campaigns to educate consumers about the open market option, around two fifths of the population still don't understand the potential rewards of using it.
It's ironic that those approaching retirement will increasingly search for the best deals - but won't necessarily do so when it comes to their retirement income. By not shopping around for an annuity, people could miss out on extra income during their retirement, which could last thirty years or more. It has never been easier to shop around for a pension income and the rewards gained will almost certainly outweigh the time spent doing so."
Benjamin Fry, consumer behaviorist said: "We often assume that our behaviour with money will be logical because we can see the results in mathematical - and therefore logical - terms. However behaviour is almost always emotional too so it's important to consider the emotional drivers of the shopping experience.
"Shopping around can give us a sense of control and achievement, but only if we really understand what we are trying to do; without understanding the product or deal there is no sense of gaining control, and therefore no satisfaction. Unfortunately, for many, annuities are still a black-hole which they feel ill-equipped to understand or to venture into. That's why some people just go with the first idea presented to them. With clearer information, those approaching retirement may become more motivated to take control and then shop around, ultimately getting better value."
Aviva has launched a Retirement Income Calculator to give people nearing retirement an accurate forecast of the income their pension pot could provide with Aviva. It also offers advice for people who may discover their pension pot is smaller than expected. To find out more visit aviva.co.uk/annuities.