The secret to boosting retirement income

Take time to find the best annuity, declare any medical conditions – and you can raise your payments by 10 per cent

There's a television commercial running that's really worth watching. Aviva's annuities advert could make a substantial financial difference to half a million people every year. The message is simple: retirees could boost their income by 10 per cent simply by shopping around for their annuities. While it may not affect you right now, it could make a difference to your parents or grandparents, so it's worth passing the message on.

An annuity is the opposite of an ordinary insurance policy, providing a guaranteed lifetime income for people who have retired. They have to use a large part of their pension pot to buy an annuity so maximising returns makes sound sense, especially as an older person may have to rely on that income for decades.

David Kuo, of financial website The Motley Fool, says: "An annuity is a bet with an insurance company that you will live longer than it thinks you will. You aren't forced to buy your annuity from your existing pension provider, and different companies will have different views about how long you could live. The difference between the best and worst annuity can be as much as 15 per cent, so it is vital to shop around."

Around 450,000 annuities are taken out in the UK each year but Aviva – formerly Norwich Union – estimates that only 37 per cent use what is called an open-market option, which allows people to shop around for the best deal, rather than simply taking the plan offered by their pension companies. Gary Pepler, Aviva's UK life director, says: "It is vital that people make best use of the full value of their assets, whether these are pensions, property or savings."

The company's ad is designed to make people turn to Aviva for an annuity quote, but there are plenty of other firms to choose from. The key for anyone approaching retirement is to take control and make a positive decision. That really means sitting down with an independent financial adviser and talking through the options.

"If you are on the verge of retiring, don't just accept the first offer that comes through the door," advises Aston Goodey of MGM Advantage, another annuity company. "You may have been with your pension provider for years, but that doesn't mean they'll offer you the best deal when it comes to converting your hard-earned cash into a regular income."

According to figures from advisers Hargreaves Lansdown, someone investing £100,000 into an annuity could be better off by £1,434 a year by shopping around. Over decades, that could turn into tens of thousands of pounds.

If you have any kind of medical condition then you could be in line for an even greater payout. A smoker, for instance, could get another £1,209 a year more than the highest-paying conventional rate. It comes back to the fact that an annuity is, in effect, a bet with an insurer. The shorter the company thinks your life expectancy is, the higher the annuity payout will be.

"That's why people should always shout about any lifestyle and health issues, such as smoking. This is the one time when such issues can work in your financial favour," says Nigel Callaghan, pensions analyst at Hargreaves Lansdown. "Around four out of 10 people are entitled to an enhanced annuity, and with the average 65-year-old man having a life expectancy of 21 years, the extra amount can run into thousands."

Research from annuity company Just Retirement reveals that four out of five people retiring have no idea that they can shop around to get a better income. "With knowledge levels so low, it is unsurprising people are missing out on maximising their retirement income," says Nigel Barlow of Just Retirement. "More education is required from the time someone starts contributing to a pension to ensure they fully understand the options available when they come to draw an income."

Start your day with The Independent, sign up for daily news emails
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower