Shopping around for best annuity could bring in an extra 30%, expert points out

News - Living

Written by Ray Clancy

Monday, 30 August 2010 09:25

By shopping around for an annuity using the Open Market Option investors can receive up to 40% extra for their pension pot, however 30% don’t even bother to look, research shows. According to ABI research, only two thirds of annuity purchasers use the OMO when looking to buy an annuity and 4% don’t shop around because they are not even aware of the OMO.

Others are wrongly assuming reasons why it would not be worth their while, according to George Ladds, head of investment and pension research at Fair Investment Company.

‘For example, the ABI found 23% think as they only have a small amount to invest, it is not worth shopping around. In fact, it doesn’t matter whether your pension pot is £5,000 or £1 million, you should always exercise your right to use the OMO,’ he explained.

‘You could get more than 30% more for your pension pot whatever its value. For example, a customer had a pension fund of £5,823 to buy an annuity and was quoted £181 per annum from his pension provider but by shopping around he got £255 per annum, an increase of 41%,’ said Ladds.

‘And if you have impaired health or lifestyle issues, you could get even more. A client who smoked 20 a day and had a pension fund of £13,992 was quoted £642 per annum from her pension provider, but by shopping around was able to get £760 per annum,’ he explained.

He points out that another common misconception is that getting annuity quotes is time consuming and complicated. Indeed, according to the ABI some 14% didn’t bother to shop around because they thought it would be too much hassle.

‘This is certainly not the case. We are trying to dispel this myth that there is no point shopping around and that it is a lengthy and complex process. In fact, there is no point in not shopping around. It costs nothing to look, but it could cost you dearly if you don’t,’ added Ladds.