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May 14, 2010updated 13 Apr 2017 8:53am

UK annuity rate squeeze set to continue

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 Societys MGM Advantage unit

By LII editorial

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.

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