Following on from State of Retirement report 2017 chapter 1, which explored how much time people were spending planning for retirement, the second chapter reveals how many consumers are losing money by sticking with the same provider.
The flexibility of the pension reforms means that you don’t have to take out the annuity your provider or scheme offers. You’ve got the option to shop around for a better rate and to find an annuity that better suits you – this is the open market option.
The State of Retirement research found consumers could be missing out on thousands of pounds in retirement by not shopping around for their pension product. Research by the Pensions Policy Institute , [1] found in 2016, more than 30,000 retirees who took out an annuity with their existing provider missed out on additional income by not shopping around – in total they lost out on an additional £130 million, which equals on average over £4,000 each over the course of their retirement [2].
As well as this, 17% would like to use their income to help their children or grandchildren with a property purchase and 14% would like care costs to be covered. For your retirement income to stretch to the extra retirement costs, it means your money needs to work even harder.
The State of Retirement research found consumers could be missing out on thousands of pounds in retirement by not shopping around for their pension product. Research by the Pensions Policy Institute , [1] found in 2016, more than 30,000 retirees who took out an annuity with their existing provider missed out on additional income by not shopping around – in total they lost out on an additional £130 million, which equals on average over £4,000 each over the course of their retirement [2].
Stretching your retirement income
LV= research also found that many people expect their income at retirement to cover more than the essentials. 57% of those planning to retire in the next five years would like their income to also cover home maintenance costs, 53% would like the income to cover holidays and 24% said they’d like to leave money behind as inheritance.As well as this, 17% would like to use their income to help their children or grandchildren with a property purchase and 14% would like care costs to be covered. For your retirement income to stretch to the extra retirement costs, it means your money needs to work even harder.
Understanding the need for financial advice
Planning for retirement and getting financial advice is still quite a daunting prospect for many, however the value of this advice does start to become clear to consumers who have used it.
Over eight in ten (81%) of those who took advice feel confident that they’ve made the right choice about what to do with their money, while three-quarters (75%) say financial advice helped them get more for their money.
In addition, the research also found that nearly one in five (19%) who didn’t take financial advice say even though they don’t regret not using it now, they worry they might in the future.
LV= has long been an advocate of financial advice, particularly at the point of retirement where decisions are increasingly complex.
LV=’s handy pension calculator allows people to check whether they’re on track for retirement and how much their pension is likely to be worth as an income at retirement.
Read State of retirement chapter 3
Sources
Methodology for consumer survey: Opinium, on behalf of LV=, conducted online interviews with 2,404 UK adults between 17th and 27th March 2017. Data has been weighted to reflect a nationally representative audience.
Methodology for amount missed out on in retirement: The Pensions Policy Institute (PPI) reported that around 80,000 annuities are purchased each year, of which 52% are purchased from the existing provider. PPI calculated that if 80% of those who purchased an annuity from their existing provider continue to lose around 6.8% of retirement income that could represent a loss of around £130 million over the lifetimes of those purchasing in annuities in 2016.
[1] PPI briefing note "What is the impact of not shopping around for annuities?"
[2] LV= calculated from the PPI figures that of the 52% of 75,355 annuities taken out in 2016 with existing providers, 80% of these would lose out on retirement income, equating to 31,347 people. With 31,347 people missing out on £130 million, that works out as £4,147 per person on average over the course of their retirement.
