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Annuity rates take a tumble

Annuity rates take a tumble

Category: Annuities

Updated: 27/10/2011
First Published: 11/07/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Annuity rates took a tumble in the three months from March to June, with enhanced products declining by more than 3.00%.

Conventional annuity rates fell by 0.18% in the quarterly period, while enhanced rates contracted by 3.50%.

Enhanced annuities are designed to give people with certain illnesses or habits, such as smoking, more income in their retirement.

The figures from MGM Advantage – which are calculated by using annuity data from Investment Life & Pensions Moneyfacts – will add further pressure to people in retirement who are living longer with increasingly diminished pots of money.

"We anticipate that this trend is set to continue," commented Craig Fazzini-Jones, director at the retirement income specialist.

"Given this, the need to shop around for the best possible annuity rate is becoming even more imperative."

The fall in rates has been compounded by stubbornly high inflation.

In June 2011, the average conventional annuity rate was just 1.04% higher than the Retail Price Index (RPI), compared to 3.87% in December 2009. For enhanced rates, the gap was 2.06% and 5.30% respectively.

For someone with a pension pot of £50,000, the fall in annuity rates plus the rise in inflation means that they would receive £101.24 and £316.36 a year less if they were buying a conventional and enhanced annuity respectively.

The annuity market also continues to offer vastly different returns at either end of the market, highlighting the need to put time into finding the best deal.

The latest 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 15.99% and 17.05% for women. In relation to enhanced annuity rates, the corresponding figures are 18.85% and 17.87%.

The difference between the average standard and enhanced annuity rates is 16.35%.

Over the average retirement, this would amount to £8,426.22 for men and a huge £10,490.80 for women, on a pension pot of £50,000.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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