One in eight people intending to purchase an annuity would not consider switching from their existing pension provider to another supplier, even if they could potentially gain additional retirement income, according to new research by Canada Life.
The research considers the reasons why pension savers would not shop around before buying an annuity and the factors that would make them more likely to switch provider. This comes as recent data from the Association of British Insurers revealed that almost a third (31%) of annuity customers purchased their product from their existing pensions provider in 2024.
Beyond the prospect of additional retirement income, the top three factors that would encourage potential annuity customers to switch from their existing pension provider were lower fees (42%), if the provider had a strong reputation for financial stability and security (34%), and if the individual had concerns about their current provider (32%).
Nearly one in three (30%) also would consider switching if the benefits or features on offer were better. Among these, the top three preferred benefits that would motivate customers to switch are the flexibility to choose a guaranteed or inflation-linked income (61%), the ability for your spouse to receive your annuity payments after you die (54%), and flexibility in withdrawals or making changes to your policy (53%).
The primary reason people are unwilling to shop around for an annuity regardless of potential additional income is trust in their incumbent pension provider (40%). A third (32%) stated that they have a good relationship with their existing pension provider, while a quarter (24%) called out good customer service from their incumbent.
Nearly a quarter (23%) of individuals said they wouldn’t know where to start when it comes to switching, and almost a sixth (15%) said they lack the confidence to switch. These figures have risen substantially since 2021, when Canada Life conducted similar research. The number of people unsure where to begin has increased by 9% (from 14% in 2021), and the proportion of people lacking confidence to switch has more than doubled (from 6% in 2021).
Nick Flynn, retirement income director at Canada Life, commented: “In January we saw a dramatic increase in gilt yields, which spelt good news for annuity rates. While the market has since stabilised somewhat, it remains an ideal time for customers considering an annuity to explore their options and take advantage of the competitive rates available. Whilst having a trusted relationship with a pension provider is beneficial, it should not deter people from shopping around for the best rate available.
“It is concerning that our research found that one in eight individuals would not consider switching provider, irrespective of potential retirement income gains. Most people wouldn’t think twice about shopping around for a better deal on their insurance or broadband – the same logic applies when it comes to an annuity. However, an annuity is for life, not just one year. So, it’s critical to get the best deal.
“It’s also worth noting that whilst ‘free money’ is an obvious plus, certain annuities come with added benefits that could suit you better as well. For example, some annuities provide flexibility in being able to make changes to the policy, while others will continue to pay a regular income to a loved one after you die."
