MGM Advantage, the retirement income specialist, says findings1 issued recently that people are living longer and that 20 year olds are three times more likely to reach 100 than their grandparents and roughly twice as likely as their parents, will dramatically increase pensioner poverty. It will also be a further nail in the coffin for traditional fixed annuities where income cannot rise with inflation.
MGM Advantage says that between June 2009 and December 2010, increased longevity has contributed towards conventional annuity rates on average falling by 7.9%, and that a long term decline in returns can be expected.2
Furthermore, the mutual estimates that the current level of annual household expenditure where the main occupant is aged 75 and over is more than £16,000. So if someone lived until they were 100, between their 75th and 100th birthday, not including inflation, they would need to find around £400,0003 to live. This, combined with falling annuity rates, is leading to more pensioners falling below the poverty line.
Aston Goodey, Sales and Marketing Director at MGM Advantage, comments: “On the face of it, people living longer is good news, but we should not overlook the fact that this has a huge financial burden on people, and that it will push thousands of pensioners below the poverty line.
“As people in retirement look for ways to enhance their income, we expect to see a long-term trend of more choosing investment backed annuities as opposed to conventional fixed term ones. Investment backed annuities give clients the opportunity to grow their income while still giving them the comfort of a minimum income guarantee.”
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