The gap between the best and worst paying annuities is costing retirees thousands of pounds in pension cash, new analysis from Just Group has revealed.
Volatile investment markets and improving income rates have encouraged more retirees to consider annuities but the gap between the most and least competitive annuity deals has risen sharply.
Stephen Lowe, group communications director at Just Group, said: “Our analysis shows the best standard annuity is currently delivering about 14% more secure income per pound of pension compared to the worst deal and many people would get even more once their medical history and lifestyle is taken into account.”
The lower the cost of buying regular income, the more pension is left to use later. As an example, Just Group says for every £1,000 of income required, the least competitive standard annuity for a healthy 65-year-old would use up to £17,450 of a pension pot, while the best would require £15,300 – a saving of £2,150.
Underwritten annuities reflecting medical conditions and lifestyle factors would offer even more competitive rates, the firm said. As an example, someone classified as obese and taking medication for high blood pressure and high cholesterol would need to use about £14,500 of a pension to secure £1,000 of lifetime income.
The Pensions and Lifetime Savings Association’s Retirement Living Standards said a ‘moderate’ living standard would require £23,300 a year in retirement income – of which £10,600 could come from a full State Pension, leaving a £12,700 shortfall.
Just Group said that a retiree seeking £12,700 a year extra income would pay £221,717 if they opted for the worst standard annuity, £194,427 by shopping around for the best standard annuity and £183,738 for a personalised annuity (as an example, assuming obesity and medication for high blood pressure and high cholesterol).
Lowe said: “For many people buying retirement income could be one of the largest and most important purchases they ever make so they should not accept the first deal on offer from their own pension provider.
“Our figures show tens of thousands of pounds difference between the best and worst deals, money which could be saved or invested for the future or used to generate additional immediate income.
“Even small differences between income rates can add up to very large sums over the course of a long retirement.”
* Annuity returns were calculated based on a 65-year-old buying a single-life, level annuity with a 5-year guarantee period. Rates were correct on 4/1/2023. The ‘personalised’ annuity assumes the retiree is classified as obese and is taking medication for high blood pressure and high cholesterol.
