High pension charges and picking the wrong annuity could conspire to decrease a potential pension by a quarter. Read on to find out more.
By Charlotte Beugge
Brits who pick the wrong pension and do not take enough care to find the best annuity rate may have to resign themselves to working to their early 70s, it is suggested.
Getting both the choice of pension fund and annuity wrong could cut a saver's potential pension income by a quarter (24%), according to a report for the National Association of Pension Funds (NAPF) by the Pensions Policy Institute (PPI).
Those who don't get the best possible deal from both factors could end up working into their early 70s, the report claims.
Anyone with a personal or money purchase pension will have to use most of the proceeds of their pension fund to buy an annuity, which then provides their retirement income.
The report says that while charges on stakeholder pensions are capped at 1.5% for the first ten years then 1%, some providers offer charges as low as 0.3% through some employer-provided schemes.
It says that someone paying the stakeholder charging level would have to work three years longer than someone with a 0.3% charging plan. On annuities, it says the difference between the best and worst annuity deals could mean a 12% margin on pension income.
To make up for this, those going for the lowest annuity rate would have to retire two years later than if they had picked the best rate. However, a third of those retiring don't bother to search for the best annuity deal.
Other factors which could boost your retirement include not taking a tax-free lump sum and using all of your fund to buy an annuity; starting saving into a pension as early as possible and increasing your contributions even by a small amount.
