The cost of not comparing an annuity is £8,000

Higher interest rates have made annuities popular again, but sticking with your current pension provider could be expensive

Exclusive data provided to the BFIA reveals that retirees who purchase an annuity frequently lose out on thousands of pounds by continuing with their current pension provider rather than comparing rates.

The Association of British Insurers reported that 1,700 annuities were sold each week last year, up a quarter from 2023, marking the return of annuities with yet another post-pension freedoms sales record.

However, independent data from the Financial Conduct Authority revealed that up to 40% of annuity purchasers do so from the same pension provider they have been saving with for decades.

Because there is a significant difference between the best and worst annuity rates available, this is frequently not the best option.

"An annuity cannot be unwound once purchased, so it's crucial that you shop around to find the best quote for you," stated Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

To determine the annuity rate that a 65-year-old with a £100,000 pension pot could receive, Hargreaves Lansdown performed calculations for the BFIA.

Single life level annuities with a five-year guarantee were available for between 8,051 and 7,667 per year.

That is a difference of 3,84 annually and 7,680 over a 20-year period.

Choosing the incorrect kind of annuity can also be very expensive. A person who discloses their ten-a-day smoking habit could receive up to 8,280 per year, which is more than 200 times higher than the best standard rate, according to recent Hargreaves Lansdown data.

In addition, this could cost several hundred pounds more annually than a typical annuity if they had a condition like diabetes.

The difference between the best and worst quotes can be hundreds of pounds annually, which can significantly impact your way of life, according to Hargreaves Morrissey.

The difference can increase to well over 7,600 over the course of a 20-year retirement, so choosing the first quote that is provided could end up being a costly error.

"It is well worth your time to use an annuity search engine to see what the market has to offer.

What is an annuity?

One method of ensuring a retirement income is through an annuity. You purchase an annuity with your pension fund, and in return, a pension provider provides you with an ongoing income that frequently increases in tandem with inflation. The rate is the sum that you receive each year.

After pension freedoms were introduced on April 6, 2015, which allowed retirees to access as much of their defined contributions pension plan savings as they desired starting at age 55, annuities first lost favor.

Prior to the financial crisis, the majority of people had to purchase an annuity, which was problematic for retirees during the decade following the crisis when interest rates were at an all-time low.

With interest rates rising once more, annuities are becoming more popular, particularly among those looking for a lifetime income guarantee due to concerns about the cost of living and stock market volatility.

However, purchasing an annuity is a significant choice that cannot be undone once made. Additionally, although some annuities do permit a loved one to inherit during a guarantee period, in many cases, your annuity payments will simply cease upon your death.