Whether you’re signing up to a broadband provider, choosing an electricity supplier or buying travel insurance for a holiday, it pays to shop around for the best deal.

And it’s no different when you’re looking to turn your pension savings into  retirement income. In fact in some circumstances scouring the market could leave you thousands of pounds better off.

The Financial Conduct Authority (FCA), the UK regulator, has raised concerns not enough people are shopping around for their pension. So what do you need to think about as you prepare to take this huge financial decision?

Choosing your preferred route

Before shopping around the market you need to decide how you want to take an income from your retirement pot. There are a number of different routes you can go down depending on your retirement income needs:

ANNUITY: a product sold by insurers that guarantees to pay a set level of income for life.

DRAWDOWN: entering drawdown means your funds remain invested. You can choose to take whatever level of income you like from your pot.

HYBRID: a few providers offer products that combine drawdown and annuities. These are mainly sold through independent financial advisers.

Given the first two options – annuities and drawdown – are by far the most popular, that’s where we’ll focus.

Shopping around for an annuity

If you’ve decided you don’t want to take any investment risk and would prefer a secure, guaranteed income for life, it’s vital you get the best deal possible – because there is no going back.

This means making sure you get the best rate on offer and ensuring you get the right type of annuity.

If you have a health condition or are a smoker, for example, you could get a better ‘enhanced’ income from certain providers.

The Money Advice Service has a great calculator to get you started:
www.moneyadviceservice.org.uk

Shopping around for drawdown

Going into drawdown is different to buying an annuity in that you can switch provider or change your income level at any time.

So rather than shopping around at the point you enter drawdown, you should be regularly reviewing your provider choice, withdrawals and investment strategy – at least once a year.

It’s worth doing this even if your priority is getting your 25% tax-free cash.

Remember the bulk of your pot will remain invested and it’s important you’re comfortable with both the risks you’re taking and charges you’re paying.

Tom Selby,

Senior Analyst, AJ Bell

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