Annuity Index Reveals Gulf in Rates

PR Newswire

WORTHING, England, July 14, 2014 /PRNewswire/ --

  • Gap between the top quartile enhanced rate and bottom quartile standard annuity is 30% 
  • Difference in rate equates to £17,000 in missed income over average retirement[1]

The latest Annuity Index[2] from retirement specialist MGM Advantage reveals the gulf in rates between the top enhanced rates and bottom standard rates is 30%. The Index also shows the average annuity rate has fallen in the second quarter of 2014, by 0.72%. The average standard annuity rate increased slightly (up by 0.42%) while the average enhanced rate fell by 1.64%.

Aston Goodey, sales and marketing Director, MGM Advantage, said: 'For people looking for a sustainable retirement income this data shows it always pays to shop around when looking for your retirement income. People who don't shop around could be missing out on thousands over the course of their retirement.

'We are seeing the emergence of two distinct markets for annuities, with, for the first time, prices going in opposite directions for standard and enhanced rates. This divergence in rate could be down to any number of factors, including the different types of assets providers use to back their books for both standard and enhanced products, as well as tactical pricing decisions.

'It is a tricky time for advisers and their clients, who are perhaps still wondering what to do following the radical Budget proposals. We need to get back to basics and understand what annuities can provide clients. If you are looking for a product to provide a retirement income for life, then an annuity is in the unique position of being able to provide 100% security for that income. Put simply, no other financial product is able to provide insurance of outliving your retirement savings.

'We know that for many people the freedom and access available from next year will be hugely appealing, but, if your objective is to convert pension savings into retirement income, then an annuity is still the product with a guarantee attached that it will continue to pay income however long you live.

'If people are watching and waiting to see what will happen next year before making any decisions, and their primary driver is a sustainable income, then our view is we will not see a treasure trove of new product innovation providing anything different from what is on offer today.'

Future annuity rates 

Commenting on the future for annuity rates, Aston Goodey said: 'The market has already felt some pretty hefty punches, most of which meant downward pressure on rates. The light at the end of the tunnel was the positive impact of future increases in interest rates and subsequent impact on gilt yields, which should help to push rates up.

'However, the Budget changes these dynamics considerably. When demand for product falls, then prices tend to rise. We might also see the type of people who traditionally bought annuities change. People with smaller pots may take the money as cash, while people with longer life expectancy might secure an income through an annuity. The net effect on the annuity pool could be to put further pressure on rates. Although we haven't felt the full effect of the changing market dynamics, annuity rates are likely to flat line for a while yet.'

What we already knew Market impact
Solvency 2 If yields increase, rates could improve.
Continuing issues include euro debt and QE
unwind, as well as interest rates

Impact of the Budget Market impact
Supply and demand In competitive parts of the market, prices
may get keener as providers seek market

Average annuity rates  

Average standard enhanced
GBP50,000 annuity annuity Difference over
pension average
pot (per year) (per year) % diff retirement
GBP11,067 men
neutral GBP2,886 GBP3,413 18% GBP12,648 women

Standard annuities  

GBP50,000 Top quartile quartile Difference over
pension average rate average rate an average
pot (per year) (per year) % diff retirement
GBP6,279 men
neutral GBP3,021 GBP2,722 11% GBP7,176 women

Enhanced annuities  

GBP50,000 Top quartile quartile Difference over
pension average rate average rate an average
pot (per year) (per year) % diff retirement
GBP5,166 men
neutral GBP3,538 GBP3,292 7% GBP5,904 women

Source: Moneyfacts / MGM Advantage Annuity Index June 2014 

Notes to editors:  

  1. Source: MGM Advantage analysis of Index rates, comparing the average top quartile enhanced rate and bottom quartile standard rate using a £50,000 pension pot.
  2. Annuity rates are based on analysis of data supplied by Investment Life and Pensions Moneyfacts to MGM Advantage (30 June 2014). The analysis looked at level annuities without a guarantee and income levels are based on a pension pot of £50,000 and a retirement age of 65. All rates are on a gender neutral basis. To create total retirement income figures the Index multiplied annual annuity income by 21 years in the case of men and 24 years in the case of women (at age 65). Enhanced rate figures are from a sample of smoker rates and enhanced rates based on health conditions. The Index bases its life expectancy figures on Office of National Statistics figures, using the cohort tables at age 65.
  3. Source: MGM Advantage analysis of annuity rates from Investment Life and Pensions Moneyfacts. The average annuity is calculated from average standard and average enhanced rates.

About MGM Advantage 

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MGM Advantage is a retirement income specialist, innovating, growing rapidly and working hard to make the most of people's money in retirement. From offices in London and Sussex, the provider sells its products through financial advisers.

The company attracted the backing of private equity investors TDR Capital, with the deal concluding in late 2013. This resulted in the creation of a new life company using the MGM Advantage brand, and resulted in a split from the mutual society (Marine and General Mutual).

The strategy set out in 2008, to focus on the retirement income market, is retained.

MGM Advantage's market leading products include an investment-linked annuity, the Flexible Income Annuity, the first retirement income product to be rated five stars by Moneyfacts. This gives customers the flexibility to change income levels at different stages of retirement and the potential for growth and therefore, the potential to negate the impact of inflation. It also provides a minimum income guarantee and death benefits.  Enhanced rates are also available for the Flexible Income Annuity.

MGM Advantage also specialises in providing enhanced annuities designed to provide additional income in retirement for people with health conditions, a poor medical history, or lifestyle conditions, for example smoking.

Through new product innovation and development MGM Advantage is always looking to find ways in which its customers can improve their retirement income, and encourages people approaching retirement to shop around for the best annuity.

MGM Advantage is part of a group of companies owned by ICE Acquisitions SARL (ICE Group). This group of companies includes the new life company (MGM Advantage) and a service company (MGM Advantage Services Limited). MGM Advantage manages assets in excess of £1.4bn (as at December 2013).

For further information
MGM Advantage
Paul Keeble    

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