Average annuity rates have increased by 6% in the third quarter of 2013, the biggest movement since 2009, according to latest figures.
The figures, from the MGM Advantage annuity index, show that rates are up by 12% since January this year and have now reached a two year high. The average annuity today would pay 11% more income than the equivalent purchased a year ago - that’s an extra £6,511 in income across retirement.
The figures also highlight a gulf between rates. The best rate for an enhanced annuity - offered to people with health or lifestyle conditions that could affect their life expectancy - is 38% higher than the worst standard rate. This means that people with health conditions who haven’t opted for an enhanced annuity could be missing out on thousands of pounds in retirement income.
MGM Advantage’s report highlighted a need for greater awareness around enhanced annuities. They say that 70% of people in retirement could get a better rate because of health and lifestyle conditions, but only 6% of consumers who purchased an annuity in the second quarter of the year, without advice, opted for an enhanced annuity. This is compared with 45% when consumers were advised or had shopped around. This highlights the importance of careful research and consideration when choosing a retirement income option, as mistakes can be costly later in life.
Aston Goodey at MGM Advantage commented on the findings:
“Annuity rates have had a really bumpy ride, but we have seen a steady improvement this year with rates hitting a two-year high, largely driven by the returns available on bonds and gilts. This is great news for people looking to generate a retirement income, although it will always pay to shop around for not only the right shape of income but also the highest rate.”
He also addressed the issue of consumer awareness, admitting that “the industry still has a long way to go to improve customer outcomes by providing the education and information required to ensure consumers get the right deal for their individual circumstances.”