Annuity rates may have reached a "tipping point" and retirees should begin to consider using the open market option (OMO), Alexander Forbes says.
The financial services provider says level annuity rates are dipping in September – a top level rate from Norwich Union has dropped £110 - suggesting the market may have reached the end of its bull run.
It adds pensioner inflation is running at around twice the official rate and argues retirees must begin to think carefully about safeguarding their retirement income, including assessing the benefits of investment-linked products.
“With annuity rates slipping and pensioner inflation rising, retirees must make the most of the Open Market Option,” says David Marlow, director at Alexander Forbes Annuity Bureau.
“There are plenty of options for pensioners to give themselves a rising income, including investment-linked products.
“With-profit and some flexible annuities, for example, provide attractive starting incomes combined with the potential for investment returns to match or beat inflation.
“Otherwise, retirees may find what seems a satisfactory income now leaves them facing real hardship in ten years time. People retiring with larger pension savings should also consider income drawdown.”
The top level rate from Norwich Union dropped £110 to £7,040 per annum for a 60-year-old male on a £100,000 level escalation policy. Legal & General held its rates but the three other top five providers also made slight cuts.
Alexander Forbes says that, despite this, today’s best income rate is still £275 per annum higher than the best available one year ago.
It adds that the best smokers’ rate bucks the trend, with Reliance Mutual increasing its annuity by £121 to £8,024 (male, 60, level escalation, £100k purchase, smoker), however all the other top five providers cut level smokers’ rates in line with the overall market trend.
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