New FCA data shows pensions savers have missed out on an estimated £3bn since the introduction of pension freedom rules, by failing to take up guaranteed annuities.
This data suggests that nearly six out of 10 pension savers, with these valuable guarantees did not take up this option. In most cases (90 per cent of cases) they chose to cash in their pensions instead.
The FCA estimates that this has effectively cost these savers around £3bn. This data has helped inform the FCA’s wider work on improving retirement outcomes. A number of people in the industry have called for pension providers to do more to flag up these guarantees.
The data shows that around 11 per cent of pensions being accessed last year offered guaranteed annuity rates. This equates to around 66,546 pensions plans.
The typical GAR annuity rate is between 8 and 10 per cent, compared to standard annuity rates of around 5.5 per cent, at the age of 65.
Commenting on this data, Hargreaves Lansdown senior analyst Nathan Long says that many consumers overlooked these annuity rates when wading through pension paperwork. Many also failed to appreciate the full value of these guarantees.
He adds: “To get that kind of rate you need to be in your 80s or in very poor health.”
He points out that one of the drawbacks of this type of policy is that the headline GAR is often offered without provision for any dependants and paid annually, although he points out many providers will offer revised quotes on reduced terms.
The FCA figures show that many of those giving up their guaranteed annuity rates have small pension pots. A total of 85 per cent of these cases are for pension pots below £10,000.
However, Long says there area a worrying number of larger pots that have also been given up. The figures show 35 per cent of pensions valued over £30,000 with a GAR have not been taken up.