Record rise for annuities in 2013 – Company Formations in England

Paul BeareFounder, Paul Beare Ltd

The average annuity rate increased by a record 13 per cent in 2013, according to research from MGM Advantage.

The MGM Advantage Annuity Index found that an average annuity bought in December 2013 will generate £7,560 more over retirement compared to an equivalent bought in December 2012. The index looked at level annuities without guarantees, a £50,000 pension pot and a retirement age of 65.

The improvement follows a 12 per cent drop in 2012 and a general trend of falling rates in recent years.

The report also revealed the value of shopping around for the best deal:

  • The difference between the best and worst conventional rate was 17 per cent
  • This equates to £9,555 over the course of a retirement
  • For an enhanced annuity, there is a 24 per cent difference between the best and worst rates – which equates to £14,616 worth of income over the average retirement.

Aston Goodey, MGM Advantage, said:

“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.”

The findings come just weeks after Pension Minister Steve Webb proposed ending the current lock-in system for annuities by allowing savers to switch to better deals.

Mr Webb’s comments were met with criticism by many in the pension industry including the Association of British Insurers, which is currently conducting an industry review of retirement options.