Pensions - Articles - Annuity rates increase but growth unlikely to be sustained

 The latest MGM Advantage Annuity Index reveals average annuity rates increased by 2.4% in the first quarter of the year, and overall up by 5.6% since December 2012. However, the retirement income specialist is warning that this good news is unlikely to be sustained due to the long-term pressures being felt by the annuity market.

 Aston Goodey at MGM Advantage comments: "Although this is good news, annuity rates have only recovered the ground lost in the second half of 2012. We are also not even close to the rates seen even just three years ago, meaning people approaching retirement will face some difficult decisions."

 MGM Advantage has calculated that someone retiring today will need a pension pot worth 24% more than someone who retired three years ago to generate the same income from an annuity.

 Aston continued: "There is a sting in the tail for people looking to generate an income in retirement from an annuity. You will need to have a pension pot worth 24% more than someone who retired three years ago to generate the same income."

 Commenting on annuity rate trends, Goodey said: "Although annuity rates are on the way up, all of the signs indicate that rates will continue to remain low for some time to come. The continuing pressures of Solvency2, improving longevity and low returns on gilts and bonds will continue to hamper any sustained recovery in rates. The market has found its feet following the introduction of gender neutral pricing, with providers more comfortable with the mix of business they can take on. With new players also coming into the enhanced market, we may see rates pushed up in the short term. But looking ahead to the longer term we are unlikely to reach the level of rates seen five years ago."