Annuities: Rates rise sharply in 2013


iStock_000016674106XSmallNew research has shown that Annuity rates rose sharply in 2013, bucking the downward trend of previous years and giving hope that future retirees will get a better deal when they finish work.

Around 400,000 people each year use an Annuity to turn their pension pot into a guaranteed income for life. Over recent years, Annuity rates have dropped significantly, reducing retirement incomes for many.

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However, the research by MGM Advantage shows that Annuity rates leapt by 13% in 2013, offsetting a 12% fall in 2012, but not drops of 4% in 2011 and 6% in 2010.

The increase in Annuity rates can put down to a number of factors, including:

  • An increase in Gilt yields
  • Improved returns on other investments bought by Annuity providers
  • Increased competition
  • A general “calming effect” after the introduction of gender neutral Annuity rates in January 2013

Better retirement incomes

The research shows the increase in Annuity rates over the past year will generate an extra £7,560 during retirement and also demonstrates the benefit of shopping around for the best Annuity rate.

According to MGM Advantage shopping around for the best conventional Annuity could increase the total income received by £9,555. Whilst those people who qualify for an Enhanced Annuity, which pays a higher income due to ill health or lifestyle factors, such as smoking, can expect to receive £14,616 more during their lifetime.

The research found that the difference between the best and worst conventional Annuity rate was approximately 17%, rising to 24% for an Enhanced Annuity.

Looking to the future, Aston Goodey of MGM Advantage commented: “It is too early to call whether the Annuity rate rally has run out of steam, but the record rate increases witnessed in the third quarter of last year tailed off significantly in the last quarter. As gilt yields ease back, and with the market predicting no interest rate rises until 2015 at the earliest, the prospect of further strong rises in annuity rates seems unlikely.”