An extra £500 in annual income would be enough of a ‘tipping point’ to encourage customers planning to purchase an annuity to switch pension providers, according to the research from Canada Life.
Customers who have a direct relationship with their pension provider have a slightly higher ‘tipping point’ of £600 additional annual income. Customers who intend to shop around for an annuity are more likely to accept a lower price point to switch, settling for an extra £350 per year. The insight also demonstrates that the value of a customer’s pension has no significant impact on their ‘tipping point’ value, as do those who intend to seek professional assistance.
According to the Canada Life research, roughly two-thirds of DC pension plan customers who haven’t taken an income from it and intend to buy an annuity with at least some of their fund plan should seek advice from an adviser or shop around before purchasing an annuity. Another 18 per cent plan to set up their retirement income directly with their pension provider, without the assistance of Pension Wise or a regulated financial adviser.
Canada Life director of retirement income Nick Flynn says: “For those who choose to shop around for their annuity it can be easy to secure an extra £500 a year, or even more. Simply disclosing all lifestyle and medical information can lead to a welcome extra boost to your annual income which over time can add significant value. Over a typical retirement of 20 years, that extra £500 would equate to an extra £10,000 of additional income at no additional expense. Quite simply this is ‘free’ money.
“Remember, you can’t switch annuity provider once you’ve set up a plan, so getting the most value from your hard-earned savings upfront is key. Never accept the first offer from your current pension provider, and do consider seeking help and advice.”
Flynn adds: “The recent FCA data references 20 firms were involved in the sale of over 60,000 annuities last year, and yet there are only five providers competing for business in the open market. Make sure you use the open market option not only to get the best rate but also ensure you consider the full range of benefit options available.”
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