Pensioners lose hundreds of pounds as annuity rates fall

The value of pensions take a hit as annuity rates fall again, a trend that is expected to continue, research warns

The average rates on conventional and enhanced annuities fell by 0.18% and 3.5%respectively in the three months to June 2011, research from the MGM Advantage Annuity Index found.

The index, which tracks the income paid by annuities on a quarterly basis, highlights the increasing pressure on retirement funds.
 
As annuity rates drop and inflation rises, the "real" income return on annuities decreases, MGM explained.  In June 2011, the average conventional annuity rate was just 1.04% higher than the Retail Price Index (RPI), compared to 3.87% in December 2009.

For enhanced rates, the gap was 2.06% and 5.30% respectively. For someone with a pension pot of £50,000, the fall in annuity rates plus the rise in inflation means that they would receive £101.24 and £316.36 a year less if they were buying a conventional and enhanced annuity respectively, the report said.

Director at MGM Advantage Craig Fazzini-Jones commented, "These findings will put further pressure on those people in retirement as they are living longer with an ever diminishing pot of money."

"We anticipate that this trend is set to continue. Given this, the need to shop around for the best possible annuity rate is becoming ever more imperative."