By Iona Bain
A "hugely unfair and opaque" annuity system is losing retirees £1 billion every year, warns a report from pensions experts.
Half a million private sector workers are being short-changed by £2,000 when they come to buy an annuity due to "sharp practices" and "murky pricing", says the National Association of Pension Funds (NAPF) and the Pension Institute (PI).
Annuity advisers could be preying on clients who lack the "financial know-how" needed to pick the right annuity at the right price. Fewer than one in five retirees have a basic understanding of interest rates, inflation and longevity, which means most turn to advisors for help.
However, "overwhelming obstacles" mean that retirees are being given limited choice and forced to take low 'default' annuities. The problems include a lack of specialist advisers who cover the whole market, a poor service for those with smaller pension funds and a lack of support from employers and providers for those making annuity decisions.
Moreover, those who are savvy enough to shop around find it almost impossible to find the best deals because they are not "signposted".
The report also gave numerous examples of hidden charges and fees that can wipe thousands of pounds off pension pots.
Joanne Segars, chief executive of the National Association of Pension Funds, says: "The way the market is priced and structured must become more transparent, and people need stronger support in picking the right annuity.
"The government and the industry must work harder to create a clearer, fairer system that delivers better value for money."
