Just Retirement has revealed the scale of the challenge facing Britain's pensioners with the launch of a study which shows that 3 in 4 of those cashing in their pension could be missing out on a better retirement income because they don't understand all the options, particularly the right to shop around for a better income.
In the current economic climate pensioners are already struggling to make ends meet due to expensive living costs and plummeting savings rates. Worryingly, only a fraction (27%) are aware how they can potentially bolster their income in retirement by getting to grips with annuities - the product they take out on retirement which converts their pension fund into an income for life.
Research commissioned by Just Retirement reveals how three quarters of those reaching retirement do not properly understand what an annuity is, meaning those eligible may not be making the best use of the options available to them. For example those with health or lifestyle issues could bolster their income by opting for an ‘enhanced annuity'. In the last year alone Just Retirement calculates that this caused pensioners to miss out on around £500 million worth of additional income.
Nigel Barlow, head of technical services at Just Retirement commented: "Unfortunately, the majority of people don't understand what an annuity is or what the implications are of converting a pension fund into a pension income...and do not realise that they could get a much better deal or that they're not getting the right kind of annuity income
"Consumers spend up to 40 years of their lives saving for their retirement but when it comes to converting the money into a regular income via an annuity, there is a huge lack of understanding. People are not aware how their pension changes into an annuity or that they can shop around for a better deal on their annuity to maximise their income. The lack of general awareness revealed by Just Retirement's research is frightening and 79% of over 55s surveyed had never heard of the Open Market Option (OMO) which entitles them to shop around for a better income in retirement.
"It is critical that consumers are made aware of their options and seek advice on the right retirement income for their needs. For example opting for an enhanced annuity could typically increase their income above a standard annuity, by up to 33% and up to 60% for more serious cases."
