- Estimate 70% of those with pension funds under £40k ignored open market option last year
- Inertia costing £450m collectively over the rest of their lives
- Typical OMO increase would increase income by 12 per cent
- However people with health conditions would gain even more – missing out on 19 per cent income for life, equivalent to £311m for the rest of their lives or 69% of the total pension income missed by people with funds under £40k.
- Government missing out on substantial tax revenues and benefits savings.
Retirement specialist, Partnership’s analysis of the market leads it to believe that the vast majority of people at retirement age – 70% – with typical pension funds of under £40,000, do not attempt to increase their retirement income by taking advantage of the open market option (the right to shop around for the best annuity rate at retirement).
According to the ABI (3rd Quarter 2009) over 80% of annuities were bought with funds of less than £40,000. This trend is predicted to continue.
Partnership estimates that out of the 270,000 people who purchased annuities last year with funds under £40k only 70,000 shopped around.
Simply by casting the net wider for improved annuity rates would typically increase their income by 12 per cent for the rest of their lives, reckons the UK’s fastest growing significant life assurance company. This will cost these people lost income of £450 m for the rest of their lives.
This is far more significant for the 40% of people with impairments or health conditions who are eligible for so-called ‘impaired’ annuities – typically smokers and those who suffer from a range of medical conditions – not shopping around for the best rates is costing around 19 per cent a year in lost income for the remainder of their lives.
For those in poorer health who purchased an annuity last year their loss is the most significant losing £311m for the rest of their lives. This is equivalent to 69% of all the income lost to the least well off pensioners.
“Our analysis has also revealed that the majority of the wealthiest people in our society, those with funds over £40,000 – make sure they trawl for the best rates when converting their funds into an annuity,” said Andrew Megson, Managing Director, Retirement.
“The Government should be interested too,” added Megson. “Increased retirement income would mean more tax and less dependency on the State through means tested benefits.
“At a crucial time in the economic cycle, when it is clear we all need to make our assets work harder, our analysis of the market leads us to believe that a combination of inertia and a wider ignorance of available options shows that the vast majority of people retiring with funds under £40,000 are defaulting into standard rates from their pension provider – which is invariably less competitive. This is costing poorer retirees who purchased pensions in 2009 some £450m over the rest of their lives.
“Research from Watson Wyatt shows that this amount could increase by roughly 10 per cent each year for the foreseeable future **
“The failure of people to shop around for the best annuity rate at retirement has been an enduring scandal for the past 20 years. However Partnership’s analysis of the market leads it to believe that the people who have least, by failing to shop around last year, will miss out on a staggering £450m for life.
“This is particularly pronounced for the 40% of people with impairments or health conditions who could be eligible for up to 19% more income a year for the rest of their lives. Although they make up 40% of the people eligible for impaired annuities they account for the vast majority of lost income, with the sickest pensioners who retired last year, failing to receive £311 m for the rest of their lives or 69% of the total amount of income lost to pensioners.
“We very much hope the Government uses the opportunity arising from its Consultation to help the many poorer and vulnerable elderly people for whom an annuity is the best retirement product to maximise their income in retirement.“
* Analysis based on ABI Providers’ returns, 2009 re 450,000 lives in September 2010
**Strategic Planning for the at-retirement market, 2009, Watson Wyatt 2009
– Ends –
Media Enquiries:
Jim Boyd
Director of Corporate Affairs
07973 458675
Partnership
jim.boyd@partnership.co.uk
Rebecca Dwyer
Consultant
0774 757 8617 / 01273 777144
David Andrews Media Ltd
rebecca@davidandrewsmedia.co.uk
David Andrews
Senior Consultant – Director
07941 255855 / 01273 777144
David Andrews Media Ltd
david@davidandrewsmedia.co.uk
About Partnership:
Partnership is a specialist provider of financial solutions for people with health/ lifestyle conditions, as well as those suffering from a serious medical impairment. Partnership was the first company in the UK to offer higher retirement incomes by taking account of people’s health and lifestyle conditions. It has been a consistent innovator developing this sector by championing the needs of those with even modestly reduced life expectancies.
Partnership has led the way in providing products designed specifically for individuals whose health and lifestyle is likely to result in a reduced life expectancy. Partnership is expert in the field of medical underwriting and has a unique in-house data set. Partnership believes that its years of accumulated data and knowledge gives it a unique understanding of the impact of health and lifestyle choices on longevity. This, in turn, enables it to offer the most accurate assessment of a client’s life expectancy and therefore offer the fairest price to them.
Partnership has the most comprehensive offering in the retirement sector and offers a complete range of Enhanced Annuity solutions, from clients who smoke or have minor health impairments, through to serious conditions such as cancer. Partnership is the largest provider of annuities for Long Term Care funding in the UK, with 80% of the market, and also offers specialist Protection solutions for clients who have been declined cover from standard providers. Partnership offers a firm commitment to supporting advisers in growing their business.
Partnership was winner of the 'Long-term Care Provider' award at Health Insurance Awards 2009 and this year’s Simply Biz ‘Annuity Provider of the Year’ award.” www.partnership.co.uk
Partnership is a trading style of The Partnership Group of Companies, which includes Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), which is authorised and regulated by the Financial Services Authority. Registered office: Sackville House, 143 – 149 Fenchurch Street, London EC3M 6BN.