MGM Advantage is calling on the industry to follow its lead in ensuring all annuities reflect personal circumstances and should be individually underwritten, ensuring anyone who opts for a high level of guaranteed lifetime income is given the best possible deal.
The company is launching a new process from 23 June which means it will be able to offer quotes to anyone on an individually underwritten rate. Each person’s demographic profile (including postcode and occupation) will now be assessed alongside lifestyle and medical factors, or can be used on their own, which means MGM Advantage will now be able to offer personally tailored rates to anyone looking for a secure income in retirement.
On average, rates have improved from between 0.1% to 2.9% since the introduction of the new underwriting basis.
The following table shows how annuity rates change with the inclusion of a demographic profile into the quote for a £50,000 pension pot:
|
Client Profile |
Annuity Rate |
|
Healthy accountant living in a ‘good’ postcode |
£2,976 |
|
Healthy arc welder from a ‘poor’ postcode |
£2,983 |
|
Accountant, with angina, living in a ‘good’ postcode |
£3,343 |
|
Arc welder, with angina, living in a ‘poor’ postcode |
£3,371 |
Andrew Tully, Pensions Technical Director, MGM Advantage commented: ‘People are still looking for a high level of guaranteed income in retirement, and annuities will continue to play a role in delivering that. But, everyone should be treated as an individual, with an annuity rate tailored to their own personal circumstances.
‘Given the Budget changes, the market for annuities is likely to behave differently going forward. Companies will try to avoid attracting only people with excellent life expectancy in their family history buying annuities by using lower rates. But, by using customer’s demographic and medical information, we can help people make the most of their savings, as it will ensure they get the best outcome they can.
‘The market will adapt very quickly and everyone will be underwritten in the next few years.’
Tips to a better retirement
- From April 2015, you can use your pension savings any way you like. The first 25% can be taken as tax-free cash, and the remainder used as you wish (all income or capital withdrawals subject to your marginal rate of tax at the time)
- Consider when you want or need to take your benefits – both state and any private pension. You don’t have to use them at ‘traditional’ retirement ages, or when you stop working
- If you have a small pension pot (individually below £10,000 or up to three valued at less than £30,000) you may be able to take the whole pot as a lump sum under the current ‘triviality’ rules (from April 2015 you will be able to take the whole pension as cash, subject to marginal tax rates at the time)
- If an income is important to you, consider all the different options available to you, such as an annuity, an investment-linked annuity and income drawdown. Each of these comes with different risks – income from drawdown or an investment-linked annuity could fall in future (although hopefully it will increase)
- Consider the ‘cost of delay’ – if you are looking for a guaranteed lifetime income, then an annuity is likely to be your safest option. By delaying any decision until next year, you are losing out on income this year, which could take many years to make up
- Think about how much flexibility you need over your income, bearing in mind you may be in retirement for 20 plus years. And if you want to protect your spouse or partner if you die
- With annuities the income is guaranteed but may come with the risk of inflation which means the income you receive may not buy as much in future – you can protect your income from inflation but this comes at a cost
- If you buy an annuity don’t just buy it from the company you saved with. Make sure to shop around other providers, giving full information about your health and lifestyle – this can help you get a substantially bigger income
- Consider taking independent advice. It’s important to get it right. A qualified adviser can help you do that.
|
