Pensions  

Annuity rates must increase 6% to support delay

Annuity rates would have to improve by at least 6 per cent over the next couple of years to make any delay in purchasing a retirement income worthwhile, MGM Advantage calculated.

The lost income from delaying your annuity purchase by two years could take between 37 and 41 years to recoup if annuity rates don’t improve, provider warns.

MGM Advantage has analysed whether it could pay to delay your annuity purchase in the hope that rates will continue to improve and you might increase your income in the future.

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Andrew Tully, pensions technical director of MGM Advantage, said: “We have seen annuity rates improve over the first half of the year, from their historic lows in 2012, but the long-term outlook for rates is uncertain.

“It would take a betting man to take a punt on annuity rates improving by at least 6 per cent over the next couple of years to make any delay worthwhile.

“If rates improved by 6 per cent from today, it would be around 19 years into your annuity being set up for you to break-even on your total income.

“Many people will want and need to generate an income from their pension now, not be able to afford to wait in the hope that rates will significantly improve.

“There are many factors currently affecting annuity rates. Gilt yields remain low, quantitative easing is still in the background, people are generally living longer and the impact of Solvency II is yet to be fully felt, so there is no guarantee rates will improve enough for any delay to pay off.”