Average annuity rates have fallen again during the third quarter by 2.4 per cent and will now pay more than £2,000 less over the course of a retirement than at the time of the Budget in March, according to MGM Advantage’s latest index.
Average standard annuity rates fell by 3.01 per cent in the third quarter, while enhanced rates fared slightly better, reducing by 1.88 per cent over the same period.
The average annuity today of £3,074 per year (based on a £50,000 purchase price) would pay £2,058 less income over an average retirement, compared to the equivalent annuity purchased in March which paid an annual income of £3,172.
Second quarter results previously showed average annuity rates were down by 0.72 per cent, while the average enhanced rate fell by 1.64 per cent.
Uncertainty in the market following the radical pension freedoms announced at the Budget are not the only factor affecting the market, according to MGM, which also pointed to pressures including Solvency II, increasing longevity, the growth of the enhanced annuity market and low gilt yields.
Aston Goodey, sales and distribution director at MGM Advantage, said: “Unfortunately, this all means people who buy an annuity today will receive less income over retirement than those people who purchased earlier in the year.
“People looking for a secure income need to shop around, and ensure the company providing the annuity is considering their individual circumstances when calculating the annuity rate.
“All aspects of a customer’s details are relevant when trying to achieve the best rate, from age and occupation, to where they live, as well as their overall health and lifestyle.”
As for the future of annuity rates, Mr Goodey said any improvements in interest rates and the yields available on gilts should help move rates move up even despite the lower sales volumes which are likely in the new world from April.
“However, the market is talking about the middle of next year before we are likely to see any increase in interest rates.
“We also have Solvency II looming over us, and the obvious impact that will have on the capital adequacy of annuity providers. As we move through into the new-year, we may see rates improve in the more competitive parts of the market, as providers seek market share.”