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Drop in annuity rates since June

26 October 2011

A newly-published report has claimed that there has been a big drop in annuity rates over the course of the last three months of the year.

MGM Advantage's research found conventional rates are down by more than four per cent in the period between June and September, while there was a two per cent drop in enhanced rates.

Aston Goodey, sales and marketing director at MGM Advantage, explained that the figures put yet more pressure on the financial planning of those who are coming up to their retirement and are not sure how they are going to sort out they have enough money once they stop working.

Falling annuity rates are just one of the factors causing issues for individuals in this position, as interest rates are at a record low in the UK, inflation is at the highest point it has been at for three years and annuity rates are continuing to fall.

Market volatility

"The market volatility of recent months and weeks means the size of consumer pension pots have also fallen - giving this group of customers even less money with which to buy an annuity in order to generate an income for the rest of their life," said Mr Goodey.

He pointed out that it is going to become increasingly important over the coming months and years that older people carefully plan their retirement finances so they are not left short.

The specialist noted that it can be "damaging" if consumers do not do their homework and simply choose an annuity from their current pension provider, due to the fact that this is not always going to offer the best possible rate they could achieve on their money.

Rates to drop further

Mr Goodey said: "We predict this downward trend in annuity rates will continue and there are no signs that inflation will go down significantly in the near future."

But despite his comments, financial advice website The Motley Fool recently stated that annuities should be of interest to those coming up to their retirement.

A purchased life annuity was particularly recommended by the publication, due to the fact that this offers tax benefits over other retirement financial products.

Speaking on the FT Money Show podcast earlier in the month, Steven Lowe, management board member of the Pension Income Choice Association, stated that a lot of people are not aware that they can shop around for annuity rates in order to make sure they get the best deal.