Despite the pension freedoms, people are still not shopping around for their annuity, according to Retirement Advantage, collectively missing out on £104m of income over the course of retirement.
The firm used Association of British Insurers data to calculate out of the number of people who bought an annuity in the first six months of pension freedom, 60 per cent (or 24,360 people) did not shop around and get the best rate.
Around 40,600 people purchased an annuity between April and September, of which 60 per cent did not shop around for their annuity.
Using the average value of annuities purchased (£53,300), the difference between the best standard annuity rate (£3,038 a year) and the average standard annuity rate (£2,824 a year) was £214 a year.
Across a typical retirement of 20 years, this will equate to £4,280 less income, or multiplied by 24,360 customers - £104m.
Andrew Tully, pensions technical director at Retirement Advantage, said despite measures being introduced in April to try and encourage better practice, the situation is getting worse and the market is failing consumers.
“The issue of poor value extends to drawdown,” he stated. “While drawdown is not a one-off purchase it is still important people look around the market for the right drawdown product, as you could easily find yourself caught out by high charging or complicated products.”
Mr Tully said that unfortunately, the shopping around message appears to have been lost in the general noise around pension freedoms. “We need firm and decisive action from the regulator to ensure the market works in the best interests of consumers.”
ABI data published at the start of the month showed annuity sales have seen their first quarter on quarter increase for the last three years, with 22,380 sold, worth £1.17bn in the third quarter, compared to 18,200, worth £990m last quarter.
In terms of withdrawals, £2.2bn has been paid out via 606,000 income drawdown payments, with an average payment of £3,600.
Meanwhile, £2.85bn has been invested in 43,800 income drawdown products, an average fund of almost £65,000. This compares to £2.17bn invested in around 40,600 annuities, making the average fund invested nearly £53,300.
The data also revealed that 60 per cent of people changed provider when buying an income drawdown policy, compared with 40 per cent of customers who bought an annuity, where they were often offered guaranteed annuity rates by their existing provider.
peter.walker@ft.com
