A new report has found that a combination of inertia and ignorance could cost pensioners £277 million a year.
Just Retirement has found that not shopping around for the best rate could keep many pensioners poor for the rest of their lives. The specialist firm points out that the difference between the best and worst rates on the market is as much as 30 per cent.
Additionally too many people have no idea they could increase their income by signing up to an enhanced annuity product.
“This research makes deeply uncomfortable reading for pensioners, retirement advisers and policymakers," noted Mike Fuller, chief executive of Just Retirement.
An estimated 40 per cent of those who retire qualify for an enhanced annuity for reasons of health or lifestyle, but less than one in five people (15 per cent) think they might get one and three quarters of people are unaware they exist for people who smoke or are in poor health.
Enhanced annuities are a relatively recent development that increase the amount of money paid to pensioners who are seen as high risk (i.e. smokers, people who are obese and those with degenerative diseases) in anticipation of making fewer payments.
Their newness partially explains the lack of knowledge amongst those already in retirement, but there is "no excuse" for the lack of knowledge amongst those set to retire in the next five years, noted Mr Fuller.
Less than one in two (46 per cent) people set to retire in the next five years are aware of the open market option, which gives the right to shop around on retirement.
Moreover, 40 per cent of those questioned claimed they were unlikely to shop around even though they are aware of the benefits.
In contrast, 18 per cent of people who are now in retirement regret the fact that they did not purchase an enhanced annuity when they could.
“By not shopping around for the best annuity rate at retirement pensioners are choosing to have less income for the rest of their lives - at a time when there is an estimated £30 billion shortfall in funding for retirement," Mr Fuller added.
“It would be a disaster if the anticipated 25 per cent of people who are unaware of enhancements retired without purchasing an enhanced annuity. This could mean that eligible pensioners could lose benefits around £277 million each year."
Just Retirement believes the reluctance to shop around is based on factors including the perceived complexity of the decision, along with a fear of making the wrong decision, the perceived hassle factor versus doubts about how much extra money would be gained and rationalisations that they are probably with a good company at present.
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