Average annuity rates have increased by 3 per cent in Q1 2013, the first rise in two years according to the MGM Advantage Annuity Index.

Despite this rise, MGM Advantage’s distribution and marketing director Aston Goodey warned that a “sting in the tail” remains for savers. Over an 18-year retirement period, a pension pot valued at £50,000 would still generate £10,224 less income compared to the same annuity two years ago.

The average annuity rate for a 65 year old with a typical £50,000 pension pot with a level income and no guarantees would have provided £73,275 in March 1998 compared to just £51,750. Annual incomes for the same period were £4,885 in March 1998 compared to just £2,875 in 2013.

Goodey said: “Some of the facts affecting annuity rates, namely low gilt yields, returns on corporate bonds and Solvency II will continue to apply downward pressure on annuity rates. We think the last quarters’ price moves are more about providers repositioning themselves following the introduction of gender neutral rates rather than a sustained rally of rates.

“The continued eurozone uncertainty will continue to apply pressure on UK gilts, and with the recent Budget confirming the prospect of further quantitative easing, annuity rates are likely to continue bumping along the bottom for a while to come.”

Share Story: