They have looked at a 65-year-old with a pension fund of £50,000 who is considering whether to delay buying an annuity by two years. Given the recent changes announced in the Budget, many people are choosing to defer decisions around retirement income until the new rules are in place next April.
The company has compared various scenarios to see where someone could benefit from delaying buying an annuity. The numbers show it would take 40 years to recoup the ‘missed’ income by delaying your purchase by two years, all other things being equal.
However, the analysis then looked at improvements to annuity rates, an increase in the size of your pension pot through investment growth, or a decline in customer health, to see what effect any one of those might make to your annuity income. Even if annuity rates and fund value improved and customer health declined (the very best case scenario for income) it could still be over eight years before the ‘missed’ income, by delaying annuity purchase by two years, was recouped.
Andrew Tully, Pensions Technical Director, MGM Advantage said:
"These figures demonstrate that there are scenarios where it might be worthwhile delaying making a decision until after April 2015. But if people want some level of sustainable income, they need to be aware that they are taking a big gamble that a number of things work in their favour. As the numbers show if everything remains unchanged it would take 40 years to recoup the ‘missed’ income. That’s a lot longer than the average person expects to live at age 65."
