The ever-increasing longevity coupled with diminishing size of pension pots are making things difficult for pensioners over the past three months, warned pension provider MGM Advantage.
Retirement income form enhanced and conventional annuities have fallen by 0.18 percent and 0.35 percent respectively between March and June 2011, said Craig Fazzini-Jones, director for MGM Advantage.
The average conventional annuity rate for the firm’s annuity index was recorded at 3120, only 1.04 percent higher than the retail price index (RPI) of 5.2 percent. This is much lower compared to December 2009, when the average annuity conventional rate was 3.87 higher than RPI.
For enhanced annuities, the spread was 2.06 percent and 5.3 percent in June 2011 and December 2009 respectively.
MGM’s calculations showed that someone with a pot of £50,000 would receive £101.24 and £316.36 less each year if they were buying conventional and enhanced annuity products respectively, due to the fall in annuity rates and rise in inflation.
The average difference between standard and enhanced annuity rates was calculated at 16.35 percent. This would amount to £8.4 million for men and £10.5 million for women over the average retirement duration on a £50,000 pension pot.
“These findings will put further pressure on those people in retirement as they are living longer with an ever diminishing pot of money. We anticipate that this trend is set to continue. Given this, the need to shop around for the best possible annuity rate is becoming ever more imperative”, said Fazzini-Jones.
“Since launching our annuity index in June 2009, it has fallen six out of the seven times it has been updated, which is alarming. As people live longer, the long-term outlook for conventional and enhanced annuities is one of overall falling rates”, he added.
“This makes it all the more important to shop around for the best deal when buying an annuity as the difference between the best and worst rates can be huge”, he cautioned, adding, alternative retirement income solutions should be explored.