Annuity rates fall by 11.7% in 12 months

Wednesday, 23 January 2013 08:46

By Ben Salisbury

A study from MGM shows that the average annuity available now will pay £14,180 less over the average retirement period than it would have three years ago.

MGM says average annuity rates have fallen by 21.6 per cent since August 2009, by 11.7 per cent in the last 12 months and by 2.5 per cent in the last quarter. Rates have fallen in each of the last seven quarters.

This means that over a 20-year retirement period an annuity based on a £50,000 pension pot will pay out £14,180 less. It would provide an annual income of just £2,786 compared to £3,495 three years ago, a reduction of 20 per cent that works out at £14,180 less over a 20-year retirement period.

MGM is urging pension savers to look at alternatives and to get all the information they need to make an informed decision to protect their retirement income and get the best deal for their future.

Aston Goodey, distribution and marketing director at MGM Advantage said: "Annuity rates have fallen over the last year due to a number of factors including the historic low returns on UK gilts and the introduction of gender neutral pricing.”

MGM says that one alternative is to look at investment-linked annuities whose rates only have to improve by a relatively small amount to match the best levels that conventional annuity rates have improved by.

Aston Goodey: "With annuity rates so low people will be wondering if they have any options. It is hugely important that you shop around for the best deal to make the most of your pension. You should consider all of the options available at retirement rather than be short-changed by your holding pension provider.

"For people willing to accept some risk, alternatives include investment-linked annuities, which offer starting incomes to match the best conventional rate. The returns required to sustain an income equivalent to the best conventional rate have now fallen to a mere 3% a year. In very simple terms if your investments return more than 3% you will receive more income in retirement than a conventional annuity and if returns are less then your income will be less.

"Other options include enhanced annuities, which take health and lifestyle into account, and can increase the annuity income by as much as 30% or more. With up to 70% of the population potentially qualifying for a better rate due to health or lifestyle factors, seeking financial advice is crucial to secure the best deal."

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