Annuity gap widens

There continues to be significant differences between the best and worst annuity rates on offer to pensioners, according to research by Moneyfacts. The findings clearly demonstrate the need for consumers to shop around for the best annuity deal.

The annual annuity review also revealed mixed news for anyone planning to retire in 2009, highlighting how rates peaked during 2008 but have since taken a turn for the worse.

Until recently annuity providers had been able to sustain comparatively high rates, thanks to the higher returns available on the longer term investments backing annuities. But frequent rate changes over the past few weeks suggest that annuity providers are beginning to feel the chill of the economic downturn and are reducing the rates they offer to customers.

With average rates already falling by almost 5% since the beginning of December, pensioners need to do their annuity homework to secure the best deal available. The differences between the best and worst standard open market rates currently range between 13% and 17%, depending on age and sex for a £10K purchase and between 15% and 21% at the £50K price point. In addition, the uplift available from an enhanced rate as a result of either health or lifestyle considerations can radically improve the income payable.

The gap between the best and worst annuity rates on offer has continued to widen over the last 12 months. A year ago for an individual 60 years old, the difference between the lowest and highest standard rates for a £10K purchase price amounted to around 10% for both males and females, stretching up to 14% for both sexes at the upper age limit of 75. At the £50K price point, purchasers at the upper end of the age range would have seen a 14% difference in the best and worst rates compared with up to 21% today.

Suzanne Greener, Deputy Editor of Investment Life & Pensions Moneyfacts commented: “2008 was a dramatic year not only because rates peaked during the late summer hitting a six year high, but also due to a fundamental shift in the way annuities are priced. The variance in best and worst rates plus the wider introduction of post coded annuities and the growth in enhanced options has produced a more complex annuity market than we have seen previously. As a result, pensioners can lose out significantly if they don’t take the time to research the best deal for their individual circumstances or take advantage of an adviser’s expertise.”