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How shopping around for an annuity can boost your retirement income by more than £13,000

How shopping around for an annuity can boost your retirement income by more than £13,000
John Fitzsimons
Written By:
John Fitzsimons

Comparing annuities through the open market can boost the size of your income in retirement by more than £13,000, new research from Canada Life has revealed.

Annuities are a form of insurance product, which deliver a guaranteed income for a set period, often until death. While some pension savers opt to simply purchase an annuity from their pension provider, the Canada Life research highlighted the significant benefit that you could get in retirement by taking the time to shop around for a better deal.

Canada Life compared the annuity rates on offer for a 65-year-old with a £150,000 pension pot, offering a 10-year guarantee and with no health or lifestyle factors.

It found that the highest quote currently obtainable delivered an annual income of £10,352, while at the bottom end of the scale the worst value annuity would pay just £9,690 per year.

Over a typical 20-year retirement, that would equate to a difference of £13,240 in income.

What’s more, Canada Life emphasised that the difference could actually be even more significant, given the fact that so many annuity providers don’t openly publish their annuity rates.

Nick Flynn, retirement income director at Canada Life, highlighted that saving for retirement is only one part of the jigsaw, with savers also needing to think long and hard about how they go about using their pension pot. 

He noted that the decision to purchase an annuity cannot be reversed, so it’s important to take the time to pinpoint the right product at the outset.

Shopping around for the best deals on car insurance, securing the best mortgage rate or getting a great deal on the high street is now common-place, and so should be getting the best from your hard-earned savings,” he added.

Boosting the size of your annuity

It’s also worth highlighting that there are additional factors which will influence the size of the annuity income you receive, related to your health and lifestyle.

As with any insurance product, the provider will want to work out how much it is likely to cost them over the long term. With an annuity that means looking at your health to calculate how long you’re likely to live for, and therefore how long they will have to pay that income.

This means that if you have any health conditions, such as diabetes or an experience with cancer, then you may qualify for an enhanced annuity and therefore a higher income.

As a result it’s really important to not only shop around for the best regular rate, but to also establish whether you are eligible for a higher-paying product too.

The popularity of annuities dropped following the introduction of the pension freedoms, which afforded pension savers more control over how they use their pension pot. However, interest has returned of late, with recent increases to annuity rates adding £3,000 to lifetime incomes.

Related: Everything you needed to know about pension annuities.