It reveals average conventional and enhanced rates fell by 2.13% and 2.29% respectively in just three months. The 2.1% drop in overall average annuity rates between March and June 2012 also means that rates have fallen by 14% since June 2009, when the Index was started.
Aston Goodey, Distribution and Marketing Director at MGM Advantage comments:
"If you are considering buying an annuity this year, then I would suggest maybe buying sooner rather than later to avoid cuts in your retirement income."
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 43% for men and 46% for women.
Aston Goodey continues:
"With annuity rates unlikely to go up in the near future, there could be a cost to delaying the purchase of your annuity. The impact of Solvency II and the billions of pounds being pumped into the British economy to buy gilts has affected annuity rates. This, teamed with the forthcoming EU Gender ruling which, from December, will stop insurers paying men higher annuity rates, means that if you are going to buy an annuity - then you might wish to consider buying now before rates come down further."
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 14.53% and 17.25% for women (23.32% and 28.08% in March 2012 respectively). In relation to enhanced annuity rates, the corresponding figures are 18.72% and 17% (22.10% and 20.59% in March 2012 respectively).
The difference between the average conventional and enhanced annuity rates is 18.7%. Over the average retirement, with a pension pot of £50,000, this would amount to £8,912.76 for men and £10,290 for women.
June 2012
Given the overall trend for falling conventional and enhanced annuity rates, MGM Advantage says that the use of the Open Market Option is even more critical in shopping around to secure the best possible annuity rate. Many retirees are unaware that they can increase their income by getting a better deal with other annuity providers and taking their pension savings elsewhere. If you smoke or have health issues you should qualify for an enhanced annuity, which pays out a higher level of income on the assumption that your life expectancy is reduced.
So when is the right time to buy? It really depends on individual circumstances, sources of income, size of the pension pot and attitude to risk and health. It is difficult to second guess the market, however the likelihood of annuity rates falling further means it might be wise to buy an annuity sooner rather than later.
Investment-backed annuities are also worth considering and the MGM Advantage Flexible Income Annuity can offer the potential for investment growth, an income that can provide a natural hedge against inflation and it also comes with a minimum income guarantee for peace of mind. Funds also have the opportunity to recover within the annuity wrapper.
