Pension Income Choice Association
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Britain stands on the edge of a national tragedy. Future generations of pensioners will be significantly poorer than previous generations. The erosion of state pensions, among the lowest in Europe; significant reductions in employer pension contributions — a common feature of the move from defined benefit (DB) to defined contribution (DC) pensions; and the lowest savings ratio in almost 30 years means many people retiring in the future will face far greater financial challenges than previous generations. There is no silver bullet for today’s retirees. It will become increasingly important that people make the most of what they have accumulated for their retirement.

Against this background, it is disappointing that a great number of people who have saved for years in DC schemes might not maximise their income in retirement. For example, it is over thirty years since the introduction of the open market option and only around 1 in 3 people use it to secure a better income. What is more, retirees most likely to exercise the option are those who have access to advice (usually more affluent customers). The current system is failing the less well off members of our society who most need to maximise their pension savings if they are to avoid hardship in retirement.

The potential gain from a review of retirement options has never been greater. It’s no longer about the best conventional annuity rate. The array of retirement income options available to today’s pensioners means that a two step process is required: Choosing the right product is the first priority; then it’s important to select the best rate. This approach can often result in significant increases in income. Even a retiree in a pension scheme that offers the highest conventional annuity rate in the UK might still improve their income significantly if they qualified for an enhanced rate.

No one wants to struggle financially in retirement. Everyone has the option to choose the right product to provide their retirement income and on the most advantageous terms, but those who most need to do this are failing to do so. We have the opportunity to help improve their finances during retirement. We can achieve this without any substantial direct cost to government, without any significant burden on industry and without any major sacrifice from individuals. We must take this opportunity.

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