Annuity rates bounce back in the second quarter of 2013

The latest MGM Advantage Annuity Index reveals average annuity rates increased by 2.4% in the first quarter of the year, and overall up by 5.6% since December 2012. However, the retirement income specialist is warning that this good news is unlikely to be sustained due to the long-term pressures being felt by the annuity market.
 
Aston Goodey at MGM Advantage comments: "Although this is good news, annuity rates have only recovered the ground lost in the second half of 2012. We are also not even close to the rates seen even just three years ago, meaning people approaching retirement will face some difficult decisions."
 
MGM Advantage has calculated that someone retiring today will need a pension pot worth 24% more than someone who retired three years ago to generate the same income from an annuity.
 
Aston continued: "There is a sting in the tail for people looking to generate an income in retirement from an annuity. You will need to have a pension pot worth 24% more than someone who retired three years ago to generate the same income."
 
Commenting on annuity rate trends, Goodey said: "Although annuity rates are on the way up, all of the signs indicate that rates will continue to remain low for some time to come. The continuing pressures of Solvency, improving longevity and low returns on gilts and bonds will continue to hamper any sustained recovery in rates. The market has found its feet following the introduction of gender neutral pricing, with providers more comfortable with the mix of business they can take on. With new players also coming into the enhanced market, we may see rates pushed up in the short term. But looking ahead to the longer term we are unlikely to reach the level of rates seen five years ago."
 
Tips for maximising your retirement income:
 
1. Look at all of your options at retirement, rather than simply the  annuity on offer from your pension provider, for example the range of investment-linked annuities now available - as little as a 3% investment return is required to match the income on the best conventional annuity rate
 
2. Think about your partner and family, considering whether to provide for them when you die through a guaranteed period or joint-life annuity
 
3. Consider how long you will enjoy retirement, and think about how your spending pattern will change over that time along with how inflation might affect your income
 
4. Always exercise your right to shop around for the best annuity rate, the difference can be as much as 30% or more
 
5. Consider whether you might qualify for a better rate because you qualify for medical or lifestyle conditions, up to 70% of people who retire do qualify
 
6. Consider if you could take income in phases rather than all at once. This leaves some money invested for longer to grow and gives some flexibility around what choices you make in future
 
7. Seek professional financial advice to ensure you choose the best option or options for your needs