Pension annuity rates in freefall
Conventional annuity rates have fallen by seven per cent since June this year, research from MGM Advantage has revealed.
The MGM Advantage Annuity Index has tracked the income paid on enhanced and conventional annuities on a quarterly basis since August 2009. This is the largest drop seen since the Index began.
Enhanced annuities, which offer preferential rates due to a reduced life expectancy, also fell by five per cent during the same period. The latest falls are largely down to record low gilt yields according to MGM Advantage, which have been pushed down as a result of Quantitative Easing.
At the moment the average women’s annuity is higher than men’s due to increased life expectancy. However, the EU Gender Directive is likely to put a stop to this in December, when annuity providers will not be able to use gender to influence quotes.
Commenting, Aston Goodey, distribution and marketing director at MGM Advantage said: “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.”
As always, shopping around before settling for an annuity rate is essential, MGM advises, but some level of investment-linked annuity could also help to combat record low rates.
Goodey adds: “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.”