Article continues after advert Company
| Ages 55 / 50 | Ages 60 / 55 | Ages 65 / 60 | Ages 70 / 65 | Ages 75 / 70 |
Canada Life | £3,633 | £3,958 | £4,368 | £4,907 | £5,654 |
Hodge Life | £3,426 | £3,830 | £4,296 | £4,852 | £5,649 |
Aviva | £3,518 | £3,861 | £4,289 | £4,864 | £5,651 |
Retirement Advantage | £3,410 | £3,745 | £4,169 | £4,593 | £5,115 |
L&G | £3,338 | £3,575 | £4,117 | £4,633 | £5,541 |
(Gross annual income, £100,000, joint life 2/3rds, guaranteed 5 years and level payments.)
It is important to remember the published best buy tables normally only quote good health annuities for a standard postcode, but many annuities are arranged on enhanced terms and it is difficult to provide generic tables for these annuities because the rates are based on personalised information.
Before you go shopping you need to know what you are shopping for. I am like a record and have been repeating this message long before pension freedoms and it is even more relevant today.
My latest words of wisdom on the annuity market is that for most people there are two forces at work when they weigh up their options at retirement. First of all there are some technical factors including: the income from annuities, attitude to risk and value for money.
Secondly, there are a number of behavioral factors and these include: short term gratification or longer term prudence and income certainty or pension flexibility.
The best decisions are made when both behavioral and technical factors are taken into account in a balanced way. Poor decisions are made when there is an imbalance.
In the context of the annuities and the open market option, behaviorally people may think they are getting the best deal by shopping around, but technically they may be buying the wrong policy at the wrong time. It is obviously better if people shop around for the best annuity; someone can get the best annuity rate possible but this is of little use if the annuity is the wrong policy in the first place.
I can already hear some people with a vested interest saying ‘research shows that most people want guaranteed income and annuities are the only policy that can pay a guaranteed income for life’.
I do not disagree with this but I ask whether at current rates annuities are good value for money and if it is good long term planning to lock into guarantee annuities when the underlying interest rate is close to negative.
I can keep this simple. If we think of an annuity being like a mortgage in reverse in that the money used to purchase an annuity is paid back with interest over the lifetime of the annuitant. If the annuitant lives longer than expected they will benefit from the mortality cross subsidy but if they die before expected they will not have benefited.
The underlying interest is set at the outset and reflects the yield on long-term fixed interest investments. In September 2016 the yield on one of the benchmark gilts (15 years) fell to just over 1 per cent. This means that allowing for expenses, the underlying interest on annuities was at the lowest levels ever recorded in modern times.
