While shopping around for financial products is commonplace nowadays, it does not always extend to buying an annuity.

People who take pride in saving a few pounds on their car insurance premiums aren’t researching their options as they approach retirement.

And in some cases this means they will receive 30 per cent less income than they could have for the rest of their lives. Readers under the age of 55 could be forgiven for not knowing what an annuity is.

When you reach retirement, your pension fund is effectively cashed in to provide a tax-free cash sum, and the balance is used to buy an annuity from an insurance company.

It will then pay you a regular - and hopefully stable - income for life. While the basic idea of an annuity is simple, the permutations available mean that choosing the right product for you can be anything but easy.

That’s why research and independent advice are all the more important.

After all, it is one of the most important financial decisions you will ever make; your pension income rests upon it so it is vital you do your homework and shop around for the best deal you can get.

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First published:
Monday 28 February 2011

Publication:
What Investment

Journalist:
Kevin Rose