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Annuity rates could stay low for forseeable future

Lucinda Beeman
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Lucinda Beeman

The average annuity rate fell by 0.72 per cent in the second quarter of 2014, according to the MGM Advantage Annuity Index, and rates are expected to remain low into next year.

The Index also shows that over the same time period the average enhanced annuity rate fell by 1.64 per cent.

The gap between the top enhanced annuity rates and the bottom standard rates has reached 30 per cent.

George Osborne’s 2014 Budget, which will remove the requirement to buy an annuity as of next year, could push rates lower still according to Aston Goodey of MGM Advantage.

He 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 push rates up.”

The Budget could change all of that, Goodey said, as reduced demand combine with factors such as increasing lifespans could keep rates down for the foreseeable future.

Goodey said: “Although we haven’t felt the full effect of the changing market dynamics, annuity rates are likely to flatline for a while yet.”

He continued: “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.”