Data released by MGM Advantage annuity index shows enhanced and conventional annuity rates have fallen by 3.5 percent and 0.18 percent respectively in the three months to June 2011.
The present trend “is set to continue” and the need to shop around for better annuity rates is becoming imperative, said Craig Fazzini-Jones, director at MGM Advantage.
As annuity rates drop, the real income return on annuities drops, warned Fazzini-Jones. The report said in June 2011, the average conventional annuity rate was just one percent higher than RPI (Retail Price Index), compared to 3.87 percent in December 2009. The rates were higher by 2.1 percent and 5.3 percent respectively for enhanced annuities during the same period.
The lower annuity rates combined with higher inflation means anyone with a pension pot of £50,000 would receive £101 and £316 less a year if they were buying conventional and enhanced annuities respectively, added MGM.
“Since launching our Annuity Index in June 2009, it has fallen six out of the seven times it has been updated, which is very alarming”, said Fazzini-Jones.
Shopping-around has become critical, agreed Stephen Lowe, group external affairs and customer insight director at Just Retirement.
“Whilst annuity rates have gone up and down over the last five years, there are still approximately 40 to 50 per cent aren’t getting access to free money so let us not be overly concerned about decreasing rates”, Lowe said.
He said previous research has shown that more-than half who should be on enhanced annuity rates are not.
“Shopping around is the key. Some people are walking away from a 20 to 30 per cent increase in income for the rest of their lives as they have the wrong annuity. We can’t control economic volatility but we can shop around to get the right annuity and the best rate”, Lowe added.