WORTHING, England, October 16, 2013 /PRNewswire/ --
- Average annuity rates have increased by a record 6% in the third quarter of 2013, the biggest movement in rates since 2009[1]
- Rates are up by 12% this year
- Index reveals a gulf in rates, with the best enhanced rate 38% higher than the worst standard rate[2]
The latest MGM Advantage Annuity Index has revealed annuity rates have increased by 6% in the third quarter of the year, the largest quarterly increase since the Index launched in August 2009. Overall, rates are up by 12% since January, helping annuity rates to recover to a two-year high.
The retirement income specialist has also revealed the gulf between the best enhanced annuity rate and worst standard annuity rate is around 38%, meaning many people with health or lifestyle conditions could be missing out on thousands of pounds of income. Up to 70%[3] of people at retirement could qualify for a better rate because of a health or lifestyle condition, and yet only 6% of consumers who purchased an annuity in the second quarter of the year without advice purchased an enhanced annuity[4] (this compares to 45% when advice is provided or people shopped around).
Aston Goodey at MGM Advantage comments: "Annuity rates have had a really bumpy ride, but we have seen a steady improvement this year with rates hitting a two-year high, largely driven by the returns available on bonds and gilts. This is great news for people looking to generate a retirement income, although it will always pay to shop around for not only the right shape of income but also the highest rate.
"The data shows a chasm between the best enhanced rate and worst standard rate. This is important, as although 70% of people facing approaching retirement could qualify for a higher rate, only 6% bought an enhanced annuity in the direct market in the second quarter of the year. This shows the industry still has a long way to go to improve customer outcomes by providing the education and information required to ensure consumers get the right deal for their individual circumstances."
The average annuity today would pay 11% more income than the equivalent annuity purchased a year ago[5], or £6,111 additional income over retirement.
Commenting on the outlook for annuity rates, Aston Goodey said: "The increases we have seen this year need to be viewed relative to the record lows of 2012 and the overall trend of a decline in rates. The pressure on rates will continue due to Solvency II, improving longevity and low returns on gilts and bonds, all of which will dampen down a recovery of rates in the near term."
Chart below shows the decline in conventional annuity rates since November 1991, when rates were over 14%. Today the equivalent annuity rate is around 5.8%.
Average annuity rates
Average Average
GBP50,000 conventional enhanced Difference over
pension annuity annuity average
pot (per year) (per year) % diff retirement
Gender GBP10,626 men
neutral GBP2,871 GBP3,377 18% GBP12,144 women
Conventional annuities
Bottom
quartile
GBP50,000 Top quartile average Difference over
pension average rate rate an average
pot (per year) (per year) % diff retirement
Gender GBP8,043 men
neutral GBP3,041 GBP2,658 14% GBP9,192 women
Enhanced annuities
Bottom
quartile
GBP50,000 Top quartile average Difference over
pension average rate rate an average
pot (per year) (per year) % diff retirement
Gender GBP7,035 men
neutral GBP3,521 GBP3,186 10% GBP8,040 women
Source: Moneyfacts / MGM Advantage Annuity Index September 2013
Notes to editors:
- Annuity rates are based on analysis of data from Investment Life and Pensions Moneyfacts by MGM Advantage (30 September 2013). 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 from Investment Life and Pensions Moneyfacts.
- Source: MGM Advantage Retirement Nation 2012.
- Source: MGM Advantage analysis of ABI market data for H1 2013.
- Source: MGM Advantage analysis of current and historical annuity rates based on a conventional level annuity purchase price of £50,000 and a retirement age of 65. The average conventional rate in September 2012 would have provided an annual income of £2,580 a year, the equivalent today would be £2,871.
About MGM Advantage
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MGM Advantage is a specialist in retirement income, selling its products through Independent Financial Advisers. Based in Sussex, the life assurer opened its doors in 1852 as Marine and General Mutual Life Assurance Society, making it Britain's longest-registered company with 160 years of mutuality. In 2008, the company rebranded as MGM Advantage - a specialist in retirement income solutions.
Its market-leading products include an investment-backed 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 any health conditions or a poor medical history.
Through new product innovation and development it 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 a mutual society owned by its members, and manages assets in excess of £2.3 billion (as at December 2012). MGM Advantage Designs for Retirement, MGM Advantage and the MGM Assurance logos are Trade Marks of Marine and General Mutual Life Assurance Society.
For further information
MGM Advantage
Paul Keeble
+44-(0)7833-085387
paul.keeble@mgmadvantage.com
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