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Retirees urged to shop around for annuity quotes as income rises by hundreds of pounds

Samantha Partington
Written By:
Samantha Partington

Retirees with a drawdown pension are being urged to ask their adviser for an annuity quote as annual income levels have climbed by hundreds of pounds since the start of the year.

Age Partnership says it has seen a rise in the proportion of retirees taking lifetime annuities over drawdown pensions since rates have risen this year.

In January, the average annual annuity income was £2,292, based on a single life and purchased for £50,000, according to data firm Moneyfacts. In December, this had risen by almost 40% to £3,190.

Towards the end of October rates peaked even higher at £3,389.

But Age Partnership fears some retirees may miss out on the opportunity of taking a higher rate of fixed income than they had previously been quoted when they first drew their pension.

Darren Dicks, director of partnerships and wealth management, Age Partnership, said: “Moneyfacts latest figures back up the huge uptake in annuities that we have experienced since the start of this year.”

Last year, the proportion of households taking drawdown pensions through Age Partnership accounted for 72% of its retirement customers. Since June, this has fallen to 39%.

Annuity choice and income has risen

Retirees opting for a lifetime annuity, meanwhile, have risen from 20% to 43%.

One of its customers, a 60-year old woman, transferred £118,500 into a drawdown pension in April 2021 because she did not need the regular income offered by an annuity. At that time, she was quoted an annual annuity income of £4,800.

In October 2022, her circumstances had changed so she asked for another annuity quote. By this time, her fund value had fallen to £107,000. Despite the drop in the value of her pension, her annuity quote had risen from £4,800 a year to £7,300 a year.

“I am concerned that there could be people out there missing out on getting the highest guaranteed income possible, either because their adviser does not consider annuities or they remain with their existing pension provider and do not shop around for best annuity rate in the entire market,” said Dicks.

IFAs reluctant to discuss annuities

Dicks says there could be two reasons independent financial advisers are reluctant to discuss annuities with retirees.

“There’s been a stigma attached to annuities since the pension freedoms legislation came into force in 2015 giving retirees flexibility over how they spend or invest their pension,” said Dicks. “But also IFAs who have recommended a drawdown pension receive an ongoing income from their client’s drawdown investment, so why would they want to lose that?”

IFAs would lose their regular fee if the investor decided to withdraw their money from the drawdown pension to buy an annuity.

Age Partnership is urging pensioners to request an annuity quote from their adviser if it is not offered as part of their regular annual review. This should include a full review of medical history as illnesses can increase your annuity rate.

“Make sure that your adviser is looking at all your options,” added Dicks. “The economy has changed so much in the last few months, an annuity may not have been suitable for you at the start of the year, but it could now be the best solution. I would also recommend that you shop around, as you don’t have to take an annuity from your current pension provider.”