The latest retirement report by online financial service technology provider Iress, has highlighted some shocking statistics. For years the Association of British Insurance (ABI) campaigned to encourage people to shop around before buying an annuity. Their hard work was gaining some momentum until George Osborne stated in March 2014 that no will have to buy an annuity. The ABI’s latest figures show that 67% of people stayed with their existing provider in Q1 2015 compared to 47% in Q1 2014.
The best and worst standard annuity rates measured were 5.41% and 4.60% respectively. The different this represents using a pension fund of £100,000 is £810 per year. It seems the ‘shopping around’ message is no longer getting through with all the other news stories now hitting the headlines regarding pensions.
The main product to gain from pension reforms was income drawdown, with sales up 72% according to Iress. Drawdown is tempting retirees because of the full access and flexibility it offers, but is a more complex product to run. The same inertia is being experience with people not shopping around for a different provider. The negative results with drawdown can be even more dramatic however.
A retiree with a pot of £250,000 who withdraws 6% a year may face charges over a decade of anywhere between £16,325 with LV= and £26,490 with Scottish Widows, according to Which? This is a difference of over £10,000.
It’s understandable that due to its complexities, people are sticking with their existing pension provider and simply switching it to drawdown. The financial effect will never be known as there is no easy method of comparing plans once they’re started.
The value of financial advice in the at-retirement area can’t be more apparent with the above two examples. There is a cost to financial advice which is sometimes difficult to understand, but good financial advisers know this market which can ultimately save you thousands over your retirement.