Annuity rates rise for first time in two years
Average annuity rates rose by 3% in the first three months of the year, the first increase in two years, according to MGM Advantage.
But there is not much solace for pre-retirees as, over a typical 18-year retirement, a pension pot of £50,000 will still produce £10,224 less income compared to an annuity bought two years ago.
Aston Goodey, distribution and marketing director at MGM Advantage, says despite this, any increase is good news for people looking to retire and convert their savings into income.
"There is a sting in the tail as annuity rates are still very low and likely to remain so for some time to come," he adds, blaming a number of wider economic factors as well as policies such as Solvency II, which will mean companies must increase their capital adequacy, for continued downward pressure on rates.
According to MGM Advantage, a £50,000 pension pot belonging to a 65-year old male converted into an annuity in March 1998 would have produced an annual income of £4,885 over 15 years, meaning a total income of £73,275.
Fast-forward 15 years, and that same male retiring in March 2013 will receive £2,875 over 18 years, producing just £51,750 of total income over retirement.
This article was written for our sister website Money Observer
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.