Retirees are losing out on pension income

The effect of simply taking the first deal offered could have a huge impact on the over-50s (Getty Images)

Millions of Britain's over-fifties could lose more than a third of their retirement cash because they don't know how to get an income from their pension pot.

Despite annuity rates improving by 12 per cent this year, almost half the pre-retirement population has no idea how to convert a pension into an income, according to research from LV=. The study found that although three quarters had private pension savings, only 49 per cent had heard of an annuity. With the difference between the best and worst annuity rates on the market currently around 38 per cent, the effect of simply taking the first deal offered to them could have a huge impact.

However, the problem is compounded by the fact that only 10 per cent of this age group are aware that they could receive a far higher income from an enhanced annuity if they have a health condition or even certain lifestyle factors.

Only one in five had ever heard of income drawdown or fixed term annuities. Retirees can choose how and when they start to receive an income from their pension fund, but just 14 per cent know that they do not have to purchase an annuity as soon as they retire.

Only 11 per cent knew that they would have to purchase a joint life annuity in order for their spouse to continue receiving an income if they passed away. Fewer than 10 per cent realise that opting for an income drawdown product means that as their pension fund remains invested, it can be paid out to the person of their choice when they are no longer around.