GE Life has warned that deferring annuity purchases due to falling annuity rates, could cost pensioners hundreds of pounds a year. If an investor deferred purchase from August 2003, to February 2004, they would have lost over £250 per year for life.
Investors, who withdraw some of the fund to invest and get a better return, need strong growth rates in annuity rates to even stand still. If an investor withdrew £6,000 of a £100,000 fund to invest, they would need a five per cent return and a 6.5% rise in annuity rates to cover the cost of deferral.
Our view
We totally agree. We believe that the 'at retirement' pensions market will become more sophisticated over the coming decade. Pension companies are now better equipped to monitor retirement trends and we believe there will be an increase in the number of specialised annuity providers. In simple terms, providers will become niche players e.g. offering terms to women, or diabetics or over 70's. Even postcode annuities (which are actually here now).