How annuities are failing savers: Pension providers named and shamed

Buying an annuity is one of the most important financial decisions many have to make.

As an insurance product that turns a pension into guaranteed income throughout retirement, it ensures an individual does not outlive their savings.

Around 400,000 pensioners buy an annuity every year, yet many are potentially losing out by simply not realising the disproportion between the products on offer, and that it is in fact an “open market option”.

Those who do not spend the time to source a good deal will inevitably find themselves suffering for the rest of their retirement.

The study

These findings have come to light thanks to a recent study by the Association of British Insurers. All rates are based on a 65-year-old with a pension worth £24,000 (typical in today’s climate), who buys an annuity with £18,000.

It emerged that Scottish Widows and Clerical Medical were the two worst providers – only paying out £839 a year. Both are part of the government-backed Lloyds Banking Group.

These payments would mean a 65-year-old would have to live until 87 before making back their pension. With current life expectancies stated at 83.3 for a male, and 86 for females, it can be assumed that most would not benefit.

Not all doom and gloom

Yet many providers offered significantly better rates. The best was Reliance Mutual – a relatively small provider compared to Scottish Widows and Clerical Medical – which pays out £1,099 a year.

Of the well-known companies, Aviva – an annuity provider and umbrella company which includes Norwich Union and Commercial Union – paid out £1,080.36; making it the third highest of those surveyed.

These companies underscore why it is imperative a pension holder shops around for the best annuity.

The QROPS Group explains that for those that live abroad, a transfer into a QROPS (a HM Revenue and Customs recognised overseas pension) is also an option. A QROPS frees a pension holder from the compulsion to buy an annuity, and offers