Annuity rates in the UK are declining and are likely to continue doing so for some time, predicts Craig Fazzini-Jones, a director at mutual insurer Marine and General Mutual Life Assurance Society’s MGM Advantage unit.
Of particular significance, Fazzini-Jones noted that the introduction of Solvency II could reduce annuity rates by up to 20%.
Among influences currently compressing rates are lower investment returns and rising life expectancy. According to MGM, between December 2009 and March 2010 average annuity rates fell 0.58%, though this was lower than the 1.64% fall recorded between June 2009 and November 2009.
Fazzini-Jones said MGM’s research also showed large disparities between income paid on top quartile and bottom quartile annuities for standard and enhanced products.
For example, MGM found that men with a £50,000 ($75,000) pension pot choosing a bottom quartile-enhanced annuity could find themselves £2,297.60 worse off over the first five years of their retirement. The corresponding figure for women would be £2,237.40.