Fall in demand for conventional annuities revealed

News - Banking

Written by Ray Clancy

Monday, 15 November 2010 10:24

Some 90% of independent financial advisers anticipate a fall in demand for conventional annuities which will lead to an increase in take up of alternative annuities, a survey shows.

The findings are revealed against a backdrop of plummeting annuity rates. The MGM Advantage Annuity Index reveals annuity rates have fallen almost 7% in 18 months.

The index, which tracks the income paid on enhanced and on conventional annuities on a quarterly basis, shows that average conventional rates have fallen a staggering 6.98% since June 2009. In comparison, enhanced annuities only fell 5.32% over the same period.

‘We expect that annuity rates will continue to fall, which means that conventional annuities will become less attractive as the default retirement income option. This research supports our view that alternative annuities will continue to rise in popularity over the coming months and years,’ said Aston Goodey, sales and marketing director, MGM Advantage.

‘Our Flexible Income Annuity is a case in point. It has gained great traction in the market, and we are starting to see some of the specialist offices now writing in excess of 10% of their business with us,’ he explained.

‘Customers like the fact that it offers the flexibility to change income levels at different stages of retirement, and once they understand the damaging effects of inflation on their retirement income, it shows far better value than the inflation linked annuity,’ he added.

The company believes that the flexibility of the product and the fact that the minimum investment is £10,000 means it’s suitable for the majority of UK consumers who are willing to accept an element of investment risk on some of their pension savings, providing they have a minimum income guarantee to rely on

It describes it as a lifetime annuity that offers a choice of starting income between 50% and 120% of the income that would be available from a conventional annuity and the flexibility to vary income at key stages of retirement to meet lifestyle needs.

It has a choice of market leading actively managed funds from Jupiter, Newton, JP Morgan Asset Management, selected and monitored by Old Broad Street Research (OBSR) and a choice of passive funds using funds from Vanguard. MGM Advantage says it is the first provider in the UK to offer Vanguard funds within an annuity wrapper. A cash fund is also available from Insight Investment.