The size of the current gap between the best and worst paying annuities could be costing retirees seeking a “moderate” level of income an additional £27,290, analysis from Just Group has revealed.

The analysis, which examined retirement living standards figures from the Pensions and Lifetime Savings Association (PLSA), detailed that retirees seeking a “moderate” living standard (defined by the PLSA as £23,300 annual income) would require an extra £12,700 in annual income to reach the standard as £10,600 could come from a full state pension.

Just Group found that retirees could pay £221,717 for an annuity if they opted for the worst standard rate, whilst the best standard rate was £194,427, representing a saving of £27,290.

This gap was found to exist, albeit at different levels, for all three PLSA Retirement Living Standards, with a gap of £4,727 existing for “minimum” living standard (£33,680 for the best standard rate and £38,407 for the worst standard), and £57,374 for the “comfortable” living standard (£408,756 for the best rate and £466,131 for the worst rate).

Just Group identified this is more of an issue now as, due to volatile investment markets and improving income rates, more retirees have been “encouraged” to consider annuities that pay a guaranteed income for life.

Recent months have seen the gap between the most and least competitive annuity deals rise sharply, potentially resulting in savers spending more than necessary to secure the retirement income they need, Just Group additionally detailed.

Just Group group communications director, Stephen Lowe, commented: “Our analysis shows the best standard (non-personalised) annuity is currently delivering about 14 per cent more secure income per pound of pension compared to the worst deal and many people would get even more once their medical history and lifestyle is taken into account.

“The lower the cost of buying regular income, the more pension is left to use later. For every £1,000 of income required, the least competitive standard annuity for a healthy 65-year-old would use up about £17,450 of a pension pot, while the best would require £15,300 which is a saving of £2,150.

“Underwritten annuities reflecting medical conditions and lifestyle factors would be even better value. The exact investment required would depend on individual circumstances.

"As an example, someone classified as obese and taking medication for high blood pressure and high cholesterol would need to use about £14,500 of pension to secure £1,000 of lifetime income.”

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