Greater longevity of people will drive pensioners’ poverty up that will ultimately result in the decline of long-term conventional annuities, a research report published by MGM Advantage stated.
The report comes close on a Department for Work and Pensions (DWP) report that said 20 year olds are three times more likely to reach 100 than their grandparents and nearly twice as likely as their parents, that will “dramatically” aggravate pensioner poverty. Better life- expectancy will be a “further nail in the coffin” for traditional fixed annuities since retirement incomes don’t have indexation.
Conventional annuity rates for conventional annuities fell by 7.9 per cent on an average between June 2009 and December 2010 due to increased longevity, said MGM Advantage adding that returns will drop in the long term.
The report further estimated that the current average annual expenditure of a household, where the main occupant is over 75 years, is over £16,000. Based on a previous forecast by the Office for National Statistics (ONS), the report said individuals living till 100 would require £400,000 to live between 75 and 100 years, excluding inflation.
This, coupled with falling annuity rates will push more people below the poverty line, said MGM Advantage.
“As people in retirement look for ways to enhance their income, we expect to see a long-term trend of more choosing investment backed annuities as opposed to conventional fixed term ones,” said Aston Goodey, sales and marketing director of MGM Advantage.
On the face of it, people living longer was a positive development, but inflation and falling annuity rates remain the key concerns that will drive pensioners below the poverty line, he said.
“Investment-backed annuities give clients the opportunity to grow their income while still giving them the comfort of a minimum income guarantee,” he added.