With money so tight for so many older people, you would have thought that those entering retirement would be willing to do almost anything to help boost their pension income.

However, research has revealed that this is far from the truth. In fact, between them, pensioners turn down an astonishing £124 million in income a year - which works out at £248 each. So what is going wrong?

Annuity mistakes

The problem affects people who have defined contribution pensions. Unlike final salary schemes, when you retire, instead of having a guaranteed income every month, you have a pot of cash, which you have to buy an annuity with in order to turn it into a monthly income.

On retirement, pensioners are offered an annuity by their pension company, but they don't have to take it. In fact, they can shop around the whole of the market to find the one offering the best possible rate.


The missed income highlighted by this study comes from the fact that so many don't bother to look around (or don't know that they can) and just go with the one they are offered.

Missing out

Key Retirement Solutions (which did the research) says that those people using their service to find an annuity gain an average of 21% more income than their original quote. Assuming they have an average size pension pot of £25,000 this means missing out on £248 a year. If they have a more substantial pot - and one that is their main pension - then this means they may be missing out on well over a thousand pounds every year.

Dean Mirfin, Group Director at Key Retirement Solutions, said: "It is simply wrong that people accept the default option from their pension provider when they could increase their income by on average 21% or more by simply taking a few minutes of their time to speak to a specialist."

Enhanced payments

In some cases the increase in income was phenomenal, because the individual discovered they had one or more conditions that meant they qualified for an enhanced annuity. These are available to people with lower than average life expectancy, and you may qualify if you suffer from one of a host of illnesses such as high blood pressure or diabetes. Incredibly, the company said 62% of people using their service discovered that they could get one of these annuities.

Often the issue is that people don't know that they qualify. Partnership discovered that high blood pressure sufferers were least likely to know about it, followed by those with chronic obstructive pulmonary disease and diabetes. Between them, these affect around 11 million people in this country.

Nigel Barlow, an adviser with annuity experts Partnership, said: "Although take-up of enhanced annuities is increasing, there is still a lack of understanding as to what conditions are entitled to an enhancement. Partnership's data would indicate that people wrongly assume that the condition needs to be 'life threatening' to qualify, it probably also shows that people with less severe conditions are still not volunteering this to their financial adviser."

Andrew Tully, Pensions Technical Director at another annuity specialist, MGM Advantage, added: "With such a high proportion of our retirement nation experiencing medical problems, it is of deep concern that many people remain unaware of enhanced annuities. Despite as many as 70% of retirees potentially qualifying, recent industry data showed that only 2% bought an enhanced annuity in the non-advised market in 2011, which is shocking."

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