MSE News: Annuity rates 'hit all time low' 23 April 2015 at 4:56PM in Pensions, Annuities & Retirement Planning 15 replies 4.1K views

Former_MSE_Helen

Standard annuity rates have collapsed to all-time lows just weeks after new pension freedoms came into force...

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Annuity rates 'hit all time low'




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dunstonh

They would do as the cross subsidy pool is expected to be lower. So, the mortality gain will be reduced.

Pincher

It would be interesting to know how many annuities are taken out each year. Broken down by normal and impaired life, preferably.


Pension Wise must find it really easy to recruit, assuming there is a glut of ex-annuity clerks on the job market.

zagfles

And that's flat rate annuities, ie ones where you take the inflation risk and the gamble that inflation won't make your annuity worthless in a decade or two.

The real "risk free" option, an index linked annuity, would probably get you not much over 3%, ie £1500 a year for a £50,000 pot

bmm78

On the flipside, the death benefits on annuities are significantly improved and there is much greater choice. Annuities with a 15+ year guarantee period have a small impact on the starting income, and could improve the perceived value for money of the product.

The headline figures also don't take account of bizarre pricing anomalies as actuaries and underwriters struggle to get to grips with how to price new options (alongside any other commercial pressures they may have). Even with the overall decline in rates, there have been quotes in recent weeks well in excess of the going rate in recent years.

zagfles

bmm78 wrote: »

On the flipside, the death benefits on annuities are significantly improved and there is much greater choice. Annuities with a 15+ year guarantee period have a small impact on the starting income, and could improve the perceived value for money of the product.

Why? What is the point of a 15 year guarantee? If you want to leave money to your hiers when you die, an annuity surely isn't the way to do it. An annuity is to provide an income for the rest of your life and possibly your partner's, having a guarantee period seems pointless. Why not just drawdown for 15 years then buy an annuity?

The headline figures also don't take account of bizarre pricing anomalies as actuaries and underwriters struggle to get to grips with how to price new options

I'd like to see this type of "longevity" annuity option, they fit in well with the new pension freedoms. Is anyone in the UK offering them?

http://money.cnn.com/retirement/guide/annuities_longevity.moneymag/index.htm

jamesd

To complete the MSE example, "In January this year, for example, a 65-year-old with a £10,000 pot could have received £506 a year . Now, they would get a payment of just £476 a year on average". The same person if of state pension age would get £1,040 increasing with CPI inflation and mostly inheritable by a spouse if they used the money to fund living expenses while deferring the state pension. Instead of £476 not inheritable with no inflation link.

Annuities are almost irrelevant for common pot sizes around state pension age. They are usually soundly beaten by deferring the state pension instead.

mastrsg

All time low?

Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

Can we have proof that when inflation adjusted they are at an all time low?

zagfles

mastrsg wrote: »

All time low?

Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

Can we have proof that when inflation adjusted they are at an all time low?

How do you inflation adjust them? Have you got a crystal ball which tells you future inflation rates?

Easier to compare index linked annuity rates now with the past. Pretty sure they've gone down too...

kidmugsy

zagfles wrote: »

And that's flat rate annuities, ie ones where you take the inflation risk and the gamble that inflation won't make your annuity worthless in a decade or two.

The real "risk free" option, an index linked annuity, would probably get you not much over 3%, ie £1500 a year for a £50,000 pot

I'm glad to see those inverted commas. It's a funny expression, isn't it? Salesmen's patter I suppose.

jamesd

mastrsg wrote: »

All time low?

Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

Can we have proof that when inflation adjusted they are at an all time low?

The annuity rate is the percentage value of the pot that is payable as income. 3% of £100,000 or 5% of £100,000 is the same, regardless of what the £100,000 will buy today compared to ten years ago. Inflation is completely irrelevant to it, except when discussing alternative types of annuity like level or inflation linked.