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UK pension freedoms could be costing people £104m, as they fail to shop around for the best annuity deal

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People who have purchased an annuity over the last six months without shopping around for the best deal are set to collectively lose out on £104m over the course of their retirement, according to figures released today by Retirement Advantage.

The calculation was based on data collected for the first six months of pensions freedoms, which came into force in April 2015.

This data showed that 60 per cent of people who bought an annuity did not look around for the best rate.

“The true cost of pension freedom can be counted in the millions because people haven’t shopped around for their annuity,” said Andrew Tully, pensions technical director, Retirement Advantage. “Despite measures being introduced in April to try and encourage better practice, the situation is getting worse, and the market is failing consumers.

“The issue of poor value extends to drawdown. While drawdown is not a one-off purchase it is still important people look around the market for the right drawdown product, as you could easily find yourself caught out by high charging or complicated products. It will pay dividends to get professional financial advice to help find the right blend of products and the best value in the market.

“Unfortunately, the shopping around message appears to have been lost in the general noise around pension freedoms.”

Figures released in October by HM Revenue and Customs (HMRC) showed that 146,000 people had made 251,000 withdrawals from their pensions, totalling £2.7bn, since the pension freedoms rules came into force.

But, earlier this month, the Association of British Insurers discovered that annuity sales had risen to 22,380, worth £1.2bn, during the third quarter of 2015, which was the first time quarter-on-quarter sales had increased in three years.