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The Cost of Annuity Delay is £2,840

27 March 2013

  • And you'll need to live 36 years to make up the loss, Key Retirement Solutions analysis shows

  • Annuity customers need to look at all possible retirement income solutions 


Pensioners delaying buying an annuity risk losing £2,840 in income on average - and will then have to live another 36 years to make the money back, analysis from leading retirement income adviser Key Retirement Solutions shows.


It is warning anyone buying an annuity to shop around for the best possible deal, and to be fully informed as to the potential downsides as well as the potential upsides of delaying their annuity purchase.


Annuity rates have edged up recently on rises in gilt yields sparking hopes of a sustained rise in rates. But with gilt yields remaining low for annuity rates are unlikely to move from all-time lows.


Analysis by Key Retirement Solutions shows a 65-year-old with the median* pension fund of £25,000 could expect an annual income of £1,420 now rising to £1,499 if they delayed to the age of 67. But they would miss out on income of £2,840 for the two years that they have delayed - and would have to live another 36 years to earn that money back, were the only increase to be related to their age.


Even if annuity rates rose 0.5% during the two years they would still lose £2,840 but the good news is it would only take 14 years to earn back the lost cash. A rate rise of 0.5% would mean an income of £1,624 at age 67.


It is important though to bear in mind that should someone's health deteriorate whilst delaying their annuity purchase a greater income may be generated later should they then qualify for an enhanced annuity.


That said if this is not the case and there is no significant change in rates the cost of delay cannot be ignored. Being aware of the facts can help many make a much more informed decision.


The table below shows the incomes available at 65 and 67 based purely on age and the impact of a 0.5% rise in rates during the two years.














Annual income at 65 - rate of 5.68% to 5.78%








Annual income at 67 - rate of 6% to 6.1%








Annual income at 67 after 0.5% rise to between 6.5% and 6.57%








Dean Mirfin, Group Director at Key (, said "With annuity rates at all-time lows it can seem sensible to delay to avoid locking in an income at the low point.


"But it's a luxury very few can afford and a strategy that may not pay off. Not only do you have to go without the income but you also have to hope rates rocket and/or your health deteriorates, and if neither happens then you will have to live up to 36 years just to earn back the lost income."


Customers using Key Retirement's free whole of market annuity service have gained an average 22%** over their original quote - an average income rise of £360** with a maximum increase of £3,483**. Some customers have more than doubled their income compared with the original quote from their pension provider.


A major factor in the increased income has been the number of customers qualifying for enhanced rates through medical and lifestyle conditions - More than half of Key customers have qualified for enhanced annuities.


Currently around  500,000 annuities are bought a year and that figure is forecast to rise to 850,000 within two years as the numbers retiring increase, Key says.                                                                                          


Customers using Key's services are always asked about health and lifestyle conditions to check whether they qualify for enhanced terms on their annuity


They are also asked about levels of tax-free cash - Pension Commencement Lump Sum - they require as well as spouse or dependants' benefits and whether they want to guarantee their income after death and whether they want level or increasing income.


For more information on Key's annuity service go to


Notes to Editors


* DCisions quoted in NAPF and The Pension Institute report "Treating DC scheme members fairly in retirement"


** Key Retirement Solutions Customer analysis July - December 2012

Page last updated: Monday 01 October 2018