As many as 2 million UK adults do not know
which provider is managing their pension, and which investments are being made
with their money. Research by
asset management company Lincoln Financial Group has also found that a
surprising 48 per cent of UK pension holders do not review their pension
options once the initial investment has been made. This indicates that pension holders are not fully
aware of their rights and of the benefits that can be gained from shopping
around. So what are you losing out
on by not paying enough attention to your investments, and how can you maximise
your return on the money that you have so carefully saved?
If you are a UK personal pension holder, you would usually purchase an annuity with some or all of the savings that you have accumulated through your personal pension scheme, so that you will have an annual income throughout your retirement. You don't have to do this straight away, although you are required by law to purchase an annuity product by the age of 75. The majority of pension contracts that are in place now have an 'open market option'. This means that you could buy an annuity from any provider on the market, rather than sticking with the company that provided your pension.
Although a few pensions plans will have restrictions, it is usually your right as a consumer to choose the open markets option, although these figures from Lincoln suggest that very few people exercise this right. Unfortunately, this could mean losing out on thousands of pounds in retirement income, since the fact that a company offers a good pension scheme doesn't guarantee that their annuity rates will also be competitive.
Simon O'Connor, Head of Products and Marketing at Lincoln Financial Group, said: "With people not taking the time to review their pension options, it's not surprising that the majority are still unaware of the Open Market Option and so fail to shop around to get the best annuity for them on retirement. More needs to be done by the Government and the industry to ensure consumers are aware of their annuity options and make sure they get the best retirement product for their circumstances.
O'Connor continues: "Flexible
annuity products carry increasingly important benefits in the current climate,
such as helping to protect a pension pot against the effects of inflation and
providing the option of an income guarantee." It's particularly important to choose the most financially
beneficial annuity, because you cannot change providers once you have made your
decision, or even alter the type of annuity that you have chosen.
One example of where you might be benefiting from swapping providers is if you suffer from a health condition such as asthma or a heart condition. You may qualify for what is known as an Impaired Life Annuity or an Enhanced Annuity, which pays the annuity holder a higher income to allow for increased healthcare and treatment costs. Not all providers offer this, so you would be in danger of missing out on this option if you only looked at the products offered by your pension provider.
If you accept the annuity that is offered by your pension provider, you're likely to only have to sign a few forms and the rest is then taken care of for you. Providers rely on the fact that most of their pension holders are going to take this easy option, rather than going down the more complicated route of shopping around. However, for the sake of a few months of research, you could be adding significant amounts onto your retirement income, so it is well worth getting quotes from a number of providers. If you are approaching retirement and would like use your open market option to find the best annuity for your financial circumstances, we would recommend speaking to an experienced financial adviser to determine the most suitable product for you.