WORTHING, England, October 27, 2014 /PRNewswire/ --
- Average annuity rate down by 2.38% in the last quarter
- Average annuity today delivers £2,058 less income over retirement compared to March 2014
- Outlook for annuity rates remains unpredictable
The latest Annuity Index from retirement specialist MGM Advantage reveals the average annuity rate has fallen in the third quarter of 2014 by 2.38%. The average standard annuity rate fell by 3.01% in the third quarter, while enhanced rates fared slightly better, reducing by 1.88% over the same period.
The average annuity today, of £3,074 per year (based on a £50,000 purchase price) would pay £2,058 less income over an average retirement compared to the equivalent annuity purchased in March (paying an annual income of £3,172).
Aston Goodey, sales and distribution director, MGM Advantage, said: "Annuity rates have tumbled over the past quarter due to the yields available on gilts and other fixed interest investments, as well as the uncertainty remaining in the market following the Budget. Unfortunately, this all means people who buy an annuity today will receive less income over retirement than those people who purchased earlier in the year. The difference in rate can make a significant difference in the amount of income over an average retirement.
"People looking for a secure income need to shop around, and ensure the company providing the annuity is considering their individual circumstances when calculating the annuity rate. All aspects of a customer's details are relevant when trying to achieve the best rate, from age and occupation, to where they live, as well as their overall health and lifestyle."
Future annuity rates
Commenting on the future for annuity rates, Aston Goodey said: "The outlook for annuity rates remains unpredictable. Any improvements in interest rates and the yields available on gilts should help move rates up. However, the market is talking about the middle of next year before we are likely to see any increase in interest rates. We also have Solvency 2 looming over us, and the obvious impact that will have on the capital adequacy of annuity providers. As we move through into the new-year, we may see rates improve in the more competitive parts of the market, as providers seek market share."
Pressures on standard annuity rates
What we already knew Market impact Solvency 2 - Solvency 2 pressures will push annuity rates down Increasing longevity - People living longer pushing down rates Growth of enhanced market - Gap between standard and enhanced rates 24% + If yields increase, rates could improve. Gilt yields Continuing issues include euro debt and QE unwind, as well as interest rates Impact of the Budget Market impact Selection - Many future annuity buyers may be people more likely to live longer + In competitive parts of the market, prices Competitive pricing may get keener as providers seek market share
Source: MGM Advantage October 2014
Average annuity rates
GBP50,000 Average Average pension standard enhanced Difference over pot annuity annuity average (per year) (per year) % diff retirement Gender GBP2,799 GBP3,349 20% GBP11,550 men neutral GBP13,200 women
GBP50,000 Bottom pension Top quartile quartile Difference over pot average rate average rate an average (per year) (per year) % diff retirement Gender GBP2,917 GBP2,632 11% GBP5,985 men neutral GBP6,840 women
GBP50,000 Top quartile Bottom quartile % diff Difference over pension pot average rate average rate an average (per year) (per year) retirement Gender neutral GBP3,457 GBP3,254 6% GBP4,263 men GBP4,872 women
Source: Moneyfacts / MGM Advantage Annuity Index September 2014
Notes to editors:
- Annuity rates are based on analysis of data supplied by Investment Life and Pensions Moneyfacts to MGM Advantage (30 September 2014). The analysis looked at level annuities without a guarantee and income levels are based on a pension pot of £50,000 and a retirement age of 65. All rates are on a gender neutral basis. To create total retirement income figures the Index multiplied annual annuity income by 21 years in the case of men and 24 years in the case of women (at age 65). Enhanced rate figures are from a sample of smoker rates and enhanced rates based on health conditions. The Index bases its life expectancy figures on Office of National Statistics figures, using the cohort tables at age 65.
- Source: MGM Advantage analysis of annuity rates. A £50,000 purchase price today would secure a rate of around 6.14%, or £3,074 per year. The same annuity purchased in March 2014 would have secure a rate of 6.34%, or £3,172 a year. The difference in income over an average retirement of 21 years is £2,058.
About MGM Advantage
MGM Advantage is a retirement income specialist, innovating, growing rapidly and working hard to make the most of people's money in retirement. From offices in London and Sussex, the provider sells its products through financial advisers.
The company attracted the backing of private equity investors TDR Capital, with the deal concluding in late 2013. This resulted in the creation of a new life company using the MGM Advantage brand, and resulted in a split from the mutual society (Marine and General Mutual).
The strategy set out in 2008, to focus on the retirement income market, is retained.
MGM Advantage's market leading products include an investment-linked annuity, the Flexible Income Annuity, the first retirement income product to be rated five stars by Moneyfacts. This gives customers the flexibility to change income levels at different stages of retirement and the potential for growth and therefore, the potential to negate the impact of inflation. It also provides a minimum income guarantee and death benefits. Enhanced rates are also available for the Flexible Income Annuity.
MGM Advantage also specialises in providing enhanced annuities designed to provide additional income in retirement for people with health conditions, a poor medical history, or lifestyle conditions, for example smoking.
Through new product innovation and development MGM Advantage is always looking to find ways in which its customers can improve their retirement income, and encourages people approaching retirement to shop around for the best annuity.
MGM Advantage is part of a group of companies owned by ICE Acquisitions SARL (ICE Group). This group of companies includes the new life company (MGM Advantage) and a service company (MGM Advantage Services Limited). MGM Advantage manages assets in excess of £1.4bn (as at December 2013).
For further information
SOURCE MGM Advantage