Retirement incomes will not be sufficient for people who fail to take the time to understand their pension provisions properly.
People need to place a greater emphasis on getting to grips with their pension schemes.
Workers who don’t understand how their pension and Annuity decisions will affect their retirement could end up losing up to half of their pension income unintentionally, according to an advice group.
A greater number of people are being forced into using their pension pots to purchase an Annuity after they stop working as more companies veer away from final salary schemes towards defined contribution schemes.
However, pension advice organisation Retirement Angels is warning that many people do not realise the importance of buying the right Annuity.
The group found that 70% of companies fail to provide their staff with any Annuity advice, which means that many workers opt for the default Annuity offered to them by their employers even if it results in a lower retirement income.
Although pension providers have to tell people that they have the choice to shop around for an Annuity, a third of workers do not take any action to search the market for a better deal. This is despite the fact that shopping around could help people to increase their retirement incomes by 20%. People who have health problems can take out Enhanced Annuities than can bolster their income by up to 50%.
Alan Higham, chief executive of Retirement Angels, said: “Vulnerable employees are placed in an invidious position as they are required to make decisions on complex issues with a material risk of significant financial loss”.
He added: “Often the employee doesn’t even understand the significance of risk they are taking on and therefore don’t seek help in making the right decision. In many cases they find the communications so impenetrable that they just put it in the dustbin unread with the result that they are defaulted into a solution which may well not be right for them”.