Annuity rates at a two-year high

16 October 2013

Annuity rates are now at a two-year high, having improved 12% since January, and by 6% in the third quarter of the year, according to MGM Advantage's annuity index.

The 6% quarterly rise was the biggest of its kind since the index launched in August 2009.

It means the average annuity today would pay 11% more in income than the equivalent available a year ago, or £6,111 in additional income over the course of someone's retirement (based on a £50,000 pot bought by someone aged 65).

The difference 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," according to MGM.

While up to 70% of people at retirement could qualify for a better rate because of a health or lifestyle condition, MGM found that only 6% of consumers who purchased an annuity in the second quarter of the year without taking advice purchased an enhanced annuity. This compares to 45% when advice is provided or people shopped around.

Aston Goodey at the company said: "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.

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However, he added: "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 SolvencyII, improving longevity and low returns on gilts and bonds, all of which will dampen down a recovery of rates in the near term."

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