According to recent research and analysis by MGM Advantage, conventional annuity rates fell by 7 per cent between June and September, while enhanced rates dropped by 5 per cent. Pension experts have warned that people retiring face more annuity pain next year as the third quarter of 2012 saw record falls in the annuity rates offered by providers.
This represents the largest three month fall since the provider started monitoring rates in August 2009. According to the provider, over the past three years we have seen an overall reduction of average annuity rates of 20 per cent.
The EU gender directive, which kicks in at the tail end of this year and which will ban providers from offering gender-specific annuities, is also expected to lead to a fall in male annuity rates.
Annuity rates are also being adversely affected by record low gilt yields which in turn are driven by a combination of market forces and government policy.
It is believed that the full effect of the EU gender directive together with the Solvency II capital requirements has not yet been fully “priced in” – so we could be looking at further “ski slope” falls in the near future unless gilt yields move up.
In recent times annuities have increasingly been viewed as providing ever poorer returns for the capital being given up. Traditionally annuities have been thought of as the more straightforward purchasing option for many people with pension funds at retirement. However, as annuity rates continue to worsen – potentially to a point where the value for money is clearly questionned – the mass market for which they cater will surely start looking for other alternatives.
As the government rolls out its “Auto Enrolment” plan for millions to be enrolled in pension plans that culminate in the purchase of an annuity, the message being sung loud and clear is somewhat less than positive for the intended outcome of this strategy. Although it has been more or less imposed on employers and employees alike, Auto Enrolment has been heralded as a breakthrough in providing the means to achieving a better retirement income for the mass population of the employed across the UK. However, if annuity rates fail to inspire or worse still, falter in their tracks, then people may quickly start to question the whole point of enrolling in anything!
Back to Square One? The answer is blowing in the wind….
If you are concerned about what your existing or future pension plans will mean for you, please speak to us to arrange an initial conversation. You can ask for a comprehensive pension review to get peace of mind about all your retirement arrangements and any changes you may need to make to them and which we hope will allow you truly to look forward to being able to Retire and Smile!
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