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 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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