Chris Collinson – RetireEasy
3 February 2012. The way annuities are sold is costing half a million retirees each year as much as £1bn in future pension income, a report claims.
The National Association of Pension Funds said the sale of annuities was “Hugely unfair and opaque”.
Annuities are the annual incomes most retirees buy with their personal pension pots.
“The process for choosing an annuity is a complex one and the majority still go for the”default” option by sticking with their pension scheme provider,” the NAPF said.
The problem, the NAPF said, is that many obstacles are in the way of those who might be better off shopping around among different insurance firms – the “Open market option” – rather than just accepting the annuity offered by their pension saving company.
“Every year a billion pounds that could have been paid out in pensions instead disappears down the plughole of a murky annuity market,” she said.
Few people, the NAPF argued, knew enough to successfully chose an annuity themselves.
The NAPF report also took a dim view of the way annuities are priced by the insurers selling them.
“Annuity rate bands can have ‘cliff-edges’… penalising customers who could get a better rate by having as little as £1 more in their pot,” it said.
From April 2011 it became no longer effectively compulsory for most people to buy an annuity with their pension pots by the age of 75.