Lack of money is one of the biggest worries of Britain’s older generation, according to a new report.
Around 40 per cent of over-55s admitted lack of money was their biggest worry, according to a new report by retirement specialists MGM Advantage.
And those approaching retirement are more concerned about the lack of funds than those who have already stopped work – 47 per cent compared to 35 per cent already in retirement.
The “Our Retirement Nation” report surveyed 2,086 UK adults aged 55 years and over.
Retirement regrets
A fifth (21 per cent) of those already retired said their biggest regret in life was not having enough money.
An extra income of £98 a week on average was the amount respondents said they would need to feel financially comfortable.
More than a quarter (26 per cent) said they were worse off than before they retired and 8 per cent are struggling to keep the same standard of living and are slightly anxious about the future.
Financial ignorance
Yet it seems that while many of Britain’s older generation have fears about funding their retirement, there is a high level of ignorance when it comes to converting their pension pot into a retirement income.
The “Our Retirement Nation” report found that seven out of 10 over-55s do not fully understand what an annuity is.
Worryingly, women, who statistically live longer than men and therefore have to fund a longer retirement, were the most unaware, with eight out of 10 not fully understanding how annuities work.
Annuities explained
An annuity is the main method of converting a pension pot into retirement income.
Enhanced annuities pay out a higher income if you’re in poor health because it’s expected that you will live a shorter life. Yet 72 per cent of those surveyed were unaware that certain medical or lifestyle conditions meant they could qualify for an enhanced annuity.
This lack of understanding among the older generation could result in retirement income being halved, said MGM Advantage.
Their analysis found that the difference in retirement income between the top enhanced annuity rate and bottom standard annuity rate for those aged over 65 with a £50,000 pension pot was 54 per cent*.
Call for increased awareness
Craig Fazzini-Jones, executive director at MGM Advantage, said more needed to be done to increase awareness of annuities, including publicising the fact that retirees do not have to buy an annuity from their pension provider, but can shop around for the best rate.
He said: “It is grossly unfair that those who are most in need of additional income in retirement are unlikely to be able to afford the services of an independent financial advisor or be aware of the benefit of shopping around for better annuity rates and higher income in retirement.
“By providing clear and simple educational messaging, the benefits of shopping around for an annuity are clear to see with those who qualify for an enhanced annuity benefiting from a considerable increase in income of over 50 per cent throughout their retirement.”
Change on the cards
According to the Association of British Insurers (ABI), around a third of the 650,000 people in the UK who turn 65 every year do not shop around for an annuity: they simply accept the quote offered by their pension provider.
In a bid to encourage people to shop around for the best rate, the ABI has told its pension provider members to remove the annuity application form from the letters they send to customers in the run-up to their retirement date.
The compulsory code of practice will come into effect by March 2012. Read more about the ABI's measures to boost retirement income.
*According to analysis of Moneyfacts annuity rate data as at November 2011
