Annuity rates jump 13% in 2013: MGM

The average annuity purchased in December 2013 would generate an extra 13 per cent of retirement income compared to the previous year, MGM Advantage’s annuity index has revealed.

The index revealed the 13 per cent jump would equate to £7,560 more income over retirement. The improvement in rates follows a record fall of 12 per cent in 2012 and comes amid a general trend of falling rates over the past few years.

In November 1990 rates were over 15 per cent and today’s equivalent annuity rate is around 5.8 per cent.

Article continues after advert

MGM said the annuity index shows the real value of shopping around, with the difference between the best and worst conventional rate hitting 17 per cent. In monetary terms, this means the best rate is generating around £9,555 more income over the average retirement.

The equivalent for an enhanced annuity is around 24 per cent, or £14,616 more income over the average retirement.

Aston Goodey, spokesman at MGM Advantage, said: “Annuity rates have recovered strongly over the past year, bouncing back from the record lows seen at the end of 2012. The rise in rates has been driven by the market calming after the introduction of gender neutral rates, increased competition among open market providers, and the better returns available on underlying investments.

“It is too early to call whether the annuity rate rally has run out of steam, but the record rate increases witnessed in the third quarter of last year tailed off significantly in the last quarter. As gilt yields ease back, and with the market predicting no interest rate rises until 2015 at the earliest, the prospect of further strong rises in annuity rates seems unlikely.”

Earlier this month, the Pensions Income Choice Association launched a retirement directory. The ‘Pick-A’ will act as a ‘shop window’ for regulated retirement specialists to promote their services to people reaching retirement each year needing to make the right decisions when switching on their pension income.

The directory urges people to shop around to obtain the best annuity rate possible, but it has faced criticisms over its inclusion of restricted adviser firms that place business with retirement income providers covering only 75 per cent of the market.

Some have also hit out at the platform for confusing labelling that they have claimed fails to adequately differentiate between ‘guidance’ and ‘advice’, and that does not make clear what advice services are being offered in return for disclosed charges.