Half (47%) of people over 50 don’t have any idea about how to convert a pension pot into an income in retirement, according to new research by LV=.
The research, carried out by retirement specialists LV=, highlighted a large gap in knowledge about retirement income options, among an age group that should be better informed. Although 74% of over-50s have some private pension savings, almost half aren’t familiar with or haven’t heard of the retirement income options available to them. Only one in five are aware of alternatives to traditional annuities, such as income drawdown products.
The traditional annuity - which converts a pension pot into a fixed regular income for life - was the most well known retirement income product; 49% of over 50s said that they’d heard of it. Income drawdown and fixed term annuities were the next most well known, but less than a fifth (19%) had heard of them.
Worryingly, many people were unaware of the extra income that can be offered to someone with a health condition. Industry figures have shown that retirees could earn an income of up to 40% higher if they have a health condition, but only 16% of over 50s realise that they could get more money by disclosing health and lifestyle conditions to their annuity provider. Only 1 in 10 over 50s are aware of these “enhanced annuities”.
Head of retirement propositions at LV=, Phil Brown, said:
“The majority of people when they reach retirement age still take out an annuity with the company they have saved their pension with, but this often offers poor value. Initiatives like the ABI[Association of British Insurers]’s recently launched Annuity Window highlight the importance of shopping around, not only for the best rate, but for the most appropriate product. There are thousands of people coming up to retirement every week and, although today’s retirees have greater choice about how and when they take their retirement income, it’s clear that many are not aware of their options or what they could be entitled to.”
As most retirement income products cannot be changed once purchased, it is essential that those approaching retirement take the time to educate themselves about the options available to them, and seek advice where needed, in order to plan for retirement well ahead of time.