Pensioners who do not take unbiased financial advice when purchasing a pensions annuity may be losing thousands of pounds in pension income, because they do not end up with the best pensions annuity available to them, according to a leading pensions specialist.
Many of those buying pensions annuities to turn their pension savings into a regular income could have increased their pensions income for life by up to 20%. Pensioners in less than perfect health, who would be eligible to buy an enhanced annuity, could be missing out on as much as 30% of their potential pension income, by not seeking advice.
Specialist pensions law firm Sackers has pointed out that anyone who was not made aware of their right to shop around for their pension annuity – which is known as their ‘open market option’ (OMO) – could now be eligible to make a legal claim for compensation from pensions providers or the trustees of pension schemes.
There is an obligation on pension companies to inform customers of their open market option, as they approach retirement age. However, a report by the Financial Services Authority found that nearly 40% of pensions providers fail to make it clear enough to customers of their right to shop around. As a result, many of those retiring take the first pensions annuity offered to them, which can be an inferior annuity from their pensions provider.
A spokesman for Sackers said that while pension scheme trustees are not obliged to offer members financial advice themselves, they should advise members to get independent, unbiased financial advice elsewhere. Where they do not, and the member suffers a loss of pensions income as a result, there could be a case to answer, the company said.
