UK Retirees Miss Out Through Illogical Buying Behaviour

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Given the imminent announcement of the spending review detailing government cuts, it has never been more important to shop around, as highlighted by Aviva. The below release examines people’s approach to shopping around, looking at how this changes with age and from product to product. You will also find a table detailing time spent shopping around for different purchases, and how much money can be saved. People tend to not shop around for annuities even though this is a product that could shape the lifestyle of your retirement. Benjamin Fry, consumer behaviourist has commented on these findings.

Thousands of people could be missing out on a better retirement income because of an illogical approach to shopping around for the best deals.

According to retirement specialist Aviva, while people are used to comparing prices for routine items like food and holidays, the same logic is not always applied to annuities – potentially a much more valuable purchase.

On average, UK adults now spend a whopping 42 hours a year shopping around for a holiday, to pocket a saving of £280, and 32 hours comparing prices on food and drink, achieving a further saving of £185. However, Aviva data suggests that over 40% of people do not spend any time comparing deals from annuity providers – which could potentially mean losing out on thousands of pounds over a lifetime. This seems irrational when considering how easy it can be to shop around for a better retirement income.

The following table shows the time spent shopping around for different purchases:

Goods    Average hours spent shopping around    Average money saved
Holiday                             42                                                             £280.30
Car                             41                                                             £374.29
Food                             33                                                             £184.19
Utilities                             18                                                             £164.66
Financial Services         23                                                             £255.38
Electrical goods                 26                                                             £222.39
Sporting goods         12                                                             £123.85
Branded clothing         15                                                             £165.96

The tendency to shop around is at its peak during youth, declines as people grow older, but rises again as retirement draws near (see graph below). However, this logic in later life doesn’t seem to apply when it comes to buying annuities, even though many individuals could boost their retirement income.

(Please see graph attached)

Two thirds (66%) of consumers are unaware they can compare pension providers and potentially increase their annual income, despite the open market option (OMO), which is available to everyone purchasing an annuity.

Source: Research by One poll for Aviva1

The research also examined how certain factors such as salary, personal debt and experience of redundancy, affects shopping around. Below are the key findings:

High earners with a household income of over £60,000 are most likely to shop around to get the best value. However, this behaviour stops at retirement with only 8% seeing any advantage in shopping around for an annuity.

Consumers in debt demonstrate better buying behaviour, as seven in ten (72%) of those owing £5,000+ feel greater financial pressure to do so.

Worryingly, those who have personally experienced redundancy are no more inclined to invest time shopping around for value. Seven percent of this group claim that they do not see any benefit in shopping around for a retirement income and over a fifth (21%) say they will not bother when the time comes.

Clive Bolton, ‘at retirement’ director for Aviva said: “Shopping around for an annuity may not be as much fun as shopping around for a holiday, but the benefits will certainly last longer. Our findings show that despite campaigns to educate consumers about the open market option, around two fifths of the population still don’t understand the potential rewards of using it.

It’s ironic that those approaching retirement will increasingly search for the best deals - but won't necessarily do so when it comes to their retirement income. By not shopping around for an annuity, people could miss out on extra income during their retirement, which could last thirty years or more. It has never been easier to shop around for a pension income and the rewards gained will almost certainly outweigh the time spent doing so.”

Benjamin Fry, consumer behaviourist said: “We often assume that our behaviour with money will be logical because we can see the results in mathematical - and therefore logical - terms. However behaviour is almost always emotional too so it's important to consider the emotional drivers of the shopping experience.

“Shopping around can give us a sense of control and achievement, but only if we really understand what we are trying to do; without understanding the product or deal there is no sense of gaining control, and therefore no satisfaction. Unfortunately, for many, annuities are still a black-hole which they feel ill-equipped to understand or to venture into. That’s why some people just go with the first idea presented to them. With clearer information, those approaching retirement may become more motivated to take control and then shop around, ultimately getting better value.”

Aviva has launched a Retirement Income Calculator to give people nearing retirement an accurate forecast of the income their pension pot could provide with Aviva. It also offers advice for people who may discover their pension pot is smaller than expected. To find out more visit http://www.aviva.co.uk/annuities

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For further information, please contact:

Sarah Poulter: Aviva Press Office : 01904 452828 / 07800 691569: sarah.poulter(at)aviva(dot)co(dot)uk

Notes to Editors

[1] All figures taken from an online omnibus research conducted by One Poll during September 2010 with 2,000 UK respondents.

·Benjamin Fry was the co-presenter of the BBC's groundbreaking and long running "Spendaholics" series on BBC3 in which he helped overspenders by getting to the root of their problems. He was a member of the Center for Social Justice's commissions for early years development and family law review contributing to these publications. He now contributes to their commission on mental health. Benjamin has a private practice in Harley Street and is founder of the Happy Hour network for which he trains practitioners from many professions to work with his method.

About Aviva

·    Aviva is the world’s sixth largest* insurance group, serving 53 million customers across Europe, North America and Asia Pacific

·     Aviva's main business activities are long-term savings, fund management and general insurance, with worldwide total sales of £45.1 billion and funds under management of £379 billion at 31 December 2009

·     We are the largest insurance services provider in the UK and one of the leading providers of life and pensions products in Europe

·     The Aviva media centre at http://www.aviva.com/media includes images, company and product information and a news release archive

·     For broadcast-standard video, please visit http://www.aviva.com/media/video/

·     Follow us on twitter: http://www.twitter.com/avivaplc

*based on gross worldwide premiums at 31 December 2009

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Imogen Dunn

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