Annuity customers could miss out on an extra £7,000 per £100,000 pot during retirement by not shopping around for better products and rates says the Pensions Policy Institute (PPI).
A PPI report into the evolution of the annuities sector since the market downturn found a small majority of people shop around when purchasing an annuity. But many do not seek financial advice or guidance when purchasing due to behavioural factors such as a lack of trust in financial services, a lack of engagement with DC pensions and an underestimation of longevity, the report found.
Well-targeted behavioural prompts could encourage customers to be more active in the annuities market and compare products and rates from different providers. But current industry prompts do not appear to have encouraged customers to shop around, says the report.
PPI senior policy researcher Mark Baker says: “While the annuities market has seen a downturn since the introduction of the pension flexibilities in 2015, they can still provide people with security and a reliable income in retirement. For people who do purchase an annuity, comparing the different providers’ products and rates available in the annuities market could mean receiving up to an extra £7,000 over the course of their retirement per £100,000 of pot size.
“However, a lack of trust in financial services and low engagement with pensions can present barriers to people having the confidence or the will to find the best deal for them. Current industry prompts appear to have had minimal effect on customer behaviour, and a more tailored and targeted approach to potential customers may prove more effective in helping people to understand and engage with the potential benefits associated with shopping around.”
