Annuity rates in freefall since June

MGM Advantage have released their Annuity Index revealing a 7% and 5% drop in conventional and enhanced annuities respectively - in just three months.

Related topics:  Retirement
Amy Loddington
9th October 2012
Retirement
This is the highest quarterly fall recorded by the Index since its launch in August 2009. The Index also reports a 20% drop in average annuity rates between August 2009 and September 2012.

Aston Goodey, distribution and marketing director at MGM Advantage comments:

“Annuity rates are in free fall, largely driven by record low gilt yields. Annuity providers have yet to fully price in the effects of Solvency II or the EU Gender directive so we expect further falls over the coming months unless we see a significant upward movement in gilt yields.”

The Annuity Index reveals the difference in retirement income between the top enhanced annuity rates and bottom standard annuity rates for those aged 65+ with a £50k pension pot, is 44% for men and 48% for women.

Aston Goodey continues:

“Shopping around for the best annuity rate is critical to ensure you are not short changed. If you are worried about locking into a low rate then adopting a mix and match approach to your retirement income needs might be suitable. For example, you could secure a guaranteed income through a level annuity with half of your pension pot, and invest the balance through an investment-linked annuity. This approach provides a potential hedge against inflation and the opportunity for investment growth. Clearly you need to be comfortable accepting some investment risk.  Seeking financial advice is crucial to ensure you use the most appropriate solutions for your individual requirements as well as securing the best annuity rate.”

The Annuity Index reveals the difference in retirement income between the top enhanced annuity rates and bottom standard annuity rates for those aged 65+ with a £50,000 pension pot, is 44% for men and 48% for women.

The average conventional annuity rate for a £50,000 pension pot is £2,653 for a male aged 65. The same pension pot invested in an investment-linked annuity could generate a starting annual income of £3,4342, a 29% increase.

The chart shows the decline in annuity rates since the Index launched in August 2009.

Further findings from the Index reveal that the average difference in the income paid between the top and bottom quartile conventional annuity rates for men is 10% and 14% for women (14% and 17% in July 2012 respectively). In relation to enhanced annuity rates, the corresponding figures are 16% and 15% (18% and 17% in July 2012 respectively).

The difference between the average conventional and enhanced annuity rates is 21.5%. Over the average retirement, with a pension pot of £50,000, this would amount to £9,460 for men and £11,027 for women.
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