Annuities: Annuity rates fall by 11.7% during 2012


Annuities: Annuity rates fall by 11.7% during 2012New figures have confirmed that 2012 was a miserable year for many new retirees.

The latest figures from the MGM Advantage Annuity Index have shown that Annuity rates fell by a massive 11.7% in 2012, including a drop of 2.5% during the last quarter of the year.

The MGM Advantage figures show that last year’s falls are part of a longer term decline, with Annuity rates falling by 21.6% since August 2009.

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Experts believe the main reason behind the dramatic drop in Annuity rates is falling gilt yields, resulting from the Bank of England’s policy of Quantitative Easing. Although, some experts have pointed out that Annuity rates have fallen more quickly than gilt yields, leading to accusations that some Annuity providers have been unnecessarily cutting rates.

Commenting on the figures, Aston Goodey, Distribution and Marketing Director at MGM Advantage siad: “Annuity rates have fallen over the last year due to a number of factors including the historic low returns on UK gilts and the introduction of gender neutral pricing.

Improving longevity and Solvency II will continue to apply pressure on rates, and we expect a further period of uncertainly as the dust settles on the introduction of gender neutral prices.”

£14,180 worse off in retirement

The MGM Advantage survey shows that an average retiree aged 65, with a pension fund of £50,000, would have been able to buy an Annuity of £3,495 per year of they had retired in 2009, just three years later that figure has dropped by over 20%, to £2,786.

According to MGM Advantage the reduction means that pensioners could be £14,180 worse off over the course of their retirement.

Consider other options

For would-be retirees who want a simple solution, which provides a guaranteed income throughout retirement, then an Annuity is likely to be the only option. However, other options are available, including a Fixed Term Annuity, Investment Linked Annuity and Income Drawdown; which may now look more attractive with the government announcing an increase to the maximum income available from this option.

Goodey agrees: “With annuity rates so low people will be wondering if they have any options. It is hugely important that you shop around for the best deal to make the most of your pension. You should consider all of the options available at retirement rather than be short-changed by your holding pension provider.”

MGM Advantage Annuity Index Graph

Goodey continues: “For people willing to accept some risk, alternatives include Investment Linked Annuities, which offer starting incomes to match the best conventional rate. The returns required to sustain an income equivalent to the best conventional rate have now fallen to a mere 3% a year. In very simple terms if your investments return more than 3% you will receive more income in retirement than a Conventional Annuity and if returns are less then your income will be less. This has become a very popular solution for customers who now recognise the opportunities that these products present in the current economic environment.”

“Other options include Enhanced Annuities, which take health and lifestyle into account, and can increase the annuity income by as much as 30% or more. With up to 70% of the population potentially qualifying for a better rate due to health or lifestyle factors, seeking financial advice is crucial to secure the best deal.”

Are you retiring soon?

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies and helping people the length and breadth of the UK to deal with falling Annuity rates.

If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email

You can also use our pension Annuity calculator, to see where Annuity rates are currently set for your own individual circumstances.