Annuity rates in freefall
Annuity rates have plummeted 9.3% during the last three years, meaning less money for people about to draw their pensions, according to the latest results of MGM Advantage's Annuity Index.
Since September conventional annuity rates have fallen by 4.7%.
Meanwhile, enhanced rates that are offered to smokers or people with poor health have gone down by 2.45%.
The majority of people about to retire still buy an annuity - that provides a lifetime income - with their pension pot, so the latest news comes as another blow to older people who are already suffering from stockmarket falls and high inflation.
Pressure on retirees
Aston Goodey, sales and marketing director at MGM Advantage, says: "These findings are shocking and will put even more pressure on those people in or approaching retirement.
"Since launching our Annuity Index in June 2009, it has fallen eight out of the nine times it has been updated. With the continued economic uncertainty, the long-term outlook for conventional and enhanced annuity rates is difficult to forecast."
The MGM Advantage's Annuity Index also showed that the difference between enhanced and conventional annuities rates on the market has become more prominent, with the best enhanced annuity offering a 21% better rate than the worst conventional annuity.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.