Why you must shop around for annuities
Shorter life expectancy means improved annuity rates but many Brits who could apply for enhanced rates are failing to do so. By not shopping around they are literally throwing much needed retirement money away.
Despite pension providers not always broadcasting the fact, those entering retirement are entitled to shop around for the best and most suitable annuity on the market.
Don't settle for second best
This is referred to as the Open Market Option and all those entering retirement (whether in prime health or not) should exercise their right to shop around rather than buy an annuity product from their existing pension provider.
They should also look to maximise their retirement income by ensuring medical conditions and lifestyle issues that could impact on their life expectancy are taken into account.
However industry figures show that less than 10% improve their retirement incomes by taking an enhanced annuity, despite estimates that over 40% of retirees could qualify.
Those who smoke or who have smoked heavily or who have confirmed medical conditions should ensure that these are factored in to their annuity calculation.
Many do not plan ahead adequately or the wake up letters from pension providers as they approach retirement are either ignored or are too vague or arrive at the last minute when a quick decision has to be made.
Wake up call
Greater awareness and engagement in retirement planning throughout scheme membership will render new wake-up letters significantly more effective simply because members will have much greater understanding of the choices facing them and what they need to do to maximise their pension.
Explaining the issue of full medical disclosure at an early stage is a perfect case in point. If a retiree has more than one medical condition, he/she is more likely to qualify for an enhanced annuity.
Pension providers should raise awareness of health issues by ensuring access to accurate underwritten options and encouraging disclosure. Ultimately, providers need to simplify communications through better targeting of information and reducing the jargon.
As the need for private retirement solutions continues to grow, the potential for enhanced annuities is substantial and information from providers and comparison tables should play a key role in ensuring the right products are matched to the right people.