An estimated £130m may have been lost in 2019 as a result of people not shopping around for an annuity provider, according to research from the Pensions Policy Institute (PPI).

The research, sponsored by Retirement Line and Canada Life, found that individuals stood to gain around £7,000 of income per £100,000 over retirement if they assessed the market before purchasing an annuity.

It identified a lack of engagement with defined contribution (DC) pensions, underestimation of longevity, and trust in the industry all remain key behavioural factors that are influencing choices at retirement and, in turn, limiting the use of annuities.

The report also suggested that the annuity information prompts introduced by the Financial Conduct Authority in March 2018 “do not appear to have affected the market”, with no increase in the number of people shopping around for annuities since 2015.

Guidance was also an area of concern, as although 25 per cent of those who purchased an annuity over the past two years took regulated advice, and a further 29 per cent used Pension Wise services, 44 per cent took no advice at all.

In addition to this, the report showed that whilst the average pot size used for purchasing an annuity has almost doubled since 2015, rising from £37,000 to £71,000, fewer people are purchasing annuities than before the introduction of the pension flexibilities.

This is despite the potential market for annuities rising sharply as the proportion of people saving in DC workplace schemes increased over recent years.

Commenting on the findings, PPI senior policy researcher, Mark Baker, said that while the annuities market has seen a downturn since the introduction of the pension flexibilities in 2015, they can still provide people with security and a reliable income in retirement.

“Current industry prompts appear to have had minimal effect on customer behaviour, and a more tailored and targeted approach to potential customers may prove more effective in helping people to understand and engage with the potential benefits associated with shopping around," he concluded.

Canada Life director of retirement income, Nick Flynn, added: “Despite the introduction of pension freedoms and information prompts, the situation appears to be getting worse.

"People don’t know what they don’t know, and it isn’t simply about securing the best deal, it is equally important to buy the right shape annuity. Without professional assistance or advice, this is at best difficult.

“The PPI is right to shine the spotlight back on the market and start a debate. Just as the furlough scheme winds up, many thousands of over-55s will be considering their working futures. Many may find it hard to return to the workplace and seek the security of replacing their salary in retirement.

“An annuity is the only guarantee in town, so it’s important anyone considering their retirement options seeks guidance and advice to make the right decisions for their circumstances.”

Adding to this, Retirement Line director of propositions, Mark Ormston, warned that there "are no second chances with a lifetime annuity", stressing that "it is so important" for those considering a lifetime annuity to ensure the relevant health information is accurately corrected and to shop around for the highest annuity income available.

He continued: "The annuity market is expected to grow in the future and, as a result, this is not an issue that will simply go away. The annuity market must aim to meet customers’ needs, delivering clear and accurate communications throughout the customer pension income journey.

"Above all else, they must ensure customers have easy access to the highest annuity income available to them.”

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