♦ Difference between best and worst standard annuity slims from 20% to 8% in 12 months
♦ Pension savers can still increase their retirement income by up to 40% by shopping around
Fidelity Worldwide Investment can reveal that the disparity between the best and worst standard annuity rate has decreased from 20%, since the Association of British Insurers (ABI) Retirement Choices Code was announced in March 2012, to 8% today. Despite the tightening of annuity prices, Fidelity believes shopping around at retirement is still essential.
Fidelity analysis, done in conjunction with Annuity Direct, showed that the best standard annuity rate available to a man aged 65 with a retirement fund worth £100,000 was £5,020 per annum in February 2012 compared to the worst of £4,013*, whereas at today's rates, the best annual annuity on offer to this man is £5,427.48 compared to the worst of £4,989.48**.
Julian Webb, Head of DC Pensions & Workplace Savings at Fidelity Worldwide Investment, says: "This narrowing of differentials between annuity prices seems to have been prompted by providers leaving the market and changes in gender neutral annuity pricing. While a tighter market may seem to reduce the need for shopping around, we strongly believe that shopping around is as important now as it ever was."
By shopping around, pension savers, may find that they can beat the rate offered by their incumbent pension provider, particularly those who might be entitled to an enhanced annuity due to health problems or lifestyle choices. These savers could have the most to lose by not shopping around and could be missing out on an additional 40%*** retirement income. Fidelity can reveal that the worst enhanced annuity rate available to a male smoker aged 65 with a retirement fund worth £100,000 is approx £4,918.80 per annum versus the best enhanced annuity rate of £6,846.24. This difference of £1,927.44 per annum equates to a total loss of retirement income of £48,186 over 25 years.
The ABI Retirement Choices Code, aimed at insuring pension providers offer pension savers clear details of retirement options, is being implemented this coming Friday, 1st March. Fidelity's RetireWise service in conjunction with Annuity Direct, a specialist annuity adviser, provides all Fidelity DC members with access to an annuity supermarket service that requires members to shop around as they would on a comparison website for the best retirement income product from the whole of the market.
Webb adds: "With over 11 million more ƒkƒk people turning into pension savers over the coming years as a result of auto-enrolment, educating people about the importance of shopping around at retirement is more important than ever. However, simply telling people to ‘shop around' is just not enough. We as an industry need to help them through the process of doing so if we want to ensure that all retirees get the best possible outcome at retirement."
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