Thousands of pounds in retirement income being missed
The latest results from the MGM Advantage Annuity Index reveal that the difference between the income paid on top and bottom quartile enhanced annuities is continuing to grow. It shows that over an average retirement, men could now be £10,129 worse off and women £11,351 worse off if they chose a bottom quartile enhanced annuity for their £50,000 pension pot.
The Index also shows that annuity rates have fallen by nearly 3% since June 2009.
This continual decline in rates was apparent during each subsequent financial quarter and highlights the importance of shopping around for the best possible annuity rate.
Between April and June 2010, the difference between the top and bottom rates paid by enhanced annuities for men was 16.78%, up from 12.5% between January and March 2010. For women, the difference increased almost 4% to 17.01% from 13.06%. For the first five years of retirement, men buying a bottom quartile enhanced annuity could be £2,152 worse- off and women £2,837. Worryingly, both men and women would now receive over £600 less in the first five years of retirement than they would have done just three months ago.
Craig Fazzini-Jones, Director at MGM Advantage comments, "There are significant differences between the best and worst annuity rates for conventional and enhanced annuities, making it more crucial than ever to shop around for the best deals.
"And, with annuity rates falling and likely to continue falling, it's a good time to consider alternative retirement income solutions that can offer more flexibility than a fixed level annuity to maximise retirement income over the longer term," said Craig.
Between April 2010 and June 2010 annuity rates fell 0.69%, compared to 0.57% between December 2009 and March 2010. The average rates on standard annuities fell by 0.99% between April and June this year compared to 0.50% between January and March, whilst enhanced annuities fell 0.38% and 0.65% respectively.
The difference between an average standard and enhanced annuity rate has increased from 22.7% for men in March to 24.09% in June and from 22.6% for women in March compared to 22.69% in June. For the first five years of retirement, this would mean a difference of £3,823.50 for a man buying an annuity with £50,000, and £3,407.65 for a woman.
Looking across both the standard and enhanced annuity markets as a whole, the difference between the top and bottom quartiles continues to widen for men but has reduced slightly for women. In March 2010, the average difference for men was 34.9% and this rose in June to 35.6%. The corresponding figures for women are 34.7%% and 33.8%.