Nearly Half Of Over 45s Have Never Heard Of An Annuity

• Only 63 per cent have heard of an 'annuity'
• Just 31 per cent are aware of the Open Market Option
• Low understanding of enhanced annuities

Nearly half of over 45s in the UK have never heard of the term 'annuity' and less than a third would know where to buy one from, according to new research released today.

The MORI research, commissioned by life and pensions company MGM Assurance, questioned over 950 over 45s about their pensions knowledge. Only 63 per cent had heard of the term annuity. Knowledge of 'niche' annuities was even lower, with only 28 per cent having heard of 'enhanced annuities' and only 11 per cent of 'impaired life annuities'.

Just 31 per cent of respondents know that they can shop around for the most suitable annuity to meet their needs by using the Open Market Open. Eleven per cent think that they can only get an annuity from the company with whom they hold their pension; 5 per cent think that they can only go through a small number of providers recommended by an adviser. A massive 52 per cent didn't know where they could buy an annuity from.

Women scored lower than men on their pension knowledge - 43 per cent had not heard of the term annuity, compared with 30 per cent of men. Worryingly, the over 55s - those approaching retirement - had less knowledge than the 45-55 age group.

Those in the lowest social class groupings had the lowest levels of annuity awareness - 60 per cent of the DE group had never heard of an annuity, compared to just 13 per cent in the highest socio-economic group AB.

Tim Gosden, pensions development manager, MGM Assurance, says:

"The research findings make worrying reading. So many people are walking blind into retirement. Opting for the most suitable annuity is vitally important to securing the very best financial health in retirement. The fact that less than a third of respondents are aware of the Open Market Option shows how important it is that the FSA stands firm on its commitment to ensure that pension providers make retirees aware of their right to shop around."

Questions relating to 'enhanced' or 'impaired life' annuities, which provide better annuity rates for retirees with reduced life expectancies, revealed low awareness and vehement opposition to the concept. Seven per cent of people questioned thought that an active sports person would be entitled to an enhanced annuity, whereas only three per cent answered correctly that a smoker could get higher rates.

Most considered if unfair that smokers, the obese and for those living in certain parts of the country and doing manual work can gain access to higher annuities. The greatest opposition came from those in the higher social class groups.

Tim Gosden, pensions development manager, MGM Assurance, says:

"What this reveals is a basic misunderstanding about how enhanced annuities work. Currently it is estimated that around 40 per cent of UK retirees could access higher rates than those offered by the most competitive standard annuity providers, by purchasing enhanced annuities. Low awareness and understanding of enhanced annuities mean that thousands are losing out on higher retirement income. Only greater education by the Government, employers and advisers will alter this situation."

Technical details

Survey conducted by the MORI Financial Services for MGM Assurance on the MORI Omnibus between 4 - 8 October 2001. A nationally representative quota sample of 966 adults aged 45+ were interviewed throughout Great Britain.