Pensioners who do not shop around for annuity could be losing out on over £13,000 during their retirement if they make this big mistake, experts have warned.
Sales of annuities soared 20% in 2024 to £7 billion as savers looked to lock in their pension savings.
An annuity allows someone to cash in their pension, using the lump sum that has been invested to buy an insurance product which then pays out a monthly income.
Annuities come in different forms, single life, joint life and even impaired life, but different providers offer different rates.
Staying with your current pension provider may not be the best option, and 7 out of 10 people who bought an annuity last year, shopped around.
The other 30% may have missed out on getting a better rate.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the income offered to a 65-year-old with £100,000 to spend on an annuity with a five year guarantee differed by over £667 a year.
If they chose the best rate they would get £7,747 before tax a year, but if they chose one of the worst paying annuities it would be £7,081.
The difference is £667 a year, or £3,335 over the five years. If someone lives 20 years after retirement that is over £13,340 they will have lost out on.
Morrissey said: “Taking the time to shop around for the best annuity rate is something your future self will thank you for.
“The difference between the best and the worst rates can be several hundred pounds per year and this can make a sizeable dent in your budget.
“If you push that out over a twenty year retirement you’ve lost out on thousands so it’s well worth looking beyond the first quote you are offered and using an annuity search engine to see what the market can offer you.”
The gap between the best and worst-paying annuities has spiked higher in recent weeks, according to annuity provider Just Group of latest rates reveals.
It said an annuity buyer aged 70 would secure nearly 20% more income by choosing the best deal over the worst, adding up to £7,400 more income every 10 years from a £50,000 pension fund.
Stephen Lowe, group communications director at Just Group, said: “Current annuity rates are attracting a lot of interest from retirees wanting guaranteed income but it is unlikely your own provider will pay the most. Avoiding inferior rates requires disclosing health and lifestyle information that could push the rate higher and then shopping around for the best deal.”
