Still no real good news regarding annuity rates for November 2010 as they continue to slide, this of course is no shock as the industry has been forecasting this. Use of the open market option is now vital to ensure that you get the best annuity rates for your pension pot.

Over last month, the average annuity rate for a male aged 65 purchasing a level without guarantee annuity (based on a £10K purchase price) fell by a further 1.1% from £604 to £597. The equivalent female annuity rate fell by 1.2% from £568 to £561.

Part of the problem is that gilt yields, a major influencer of annuity rates, remain low at 3.04%.

“This latest fall in rates represents another hammer blow to the hopes that tomorrow’s pensioners will secure a decent retirement income through an annuity,” Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said.

“With rates unlikely to pick up anytime soon the priority must be for consumers to ensure they obtain the best price for their annuity. This will only be possible if they explore all of their options and utilise the much overlooked open market option.”

These November 2010 annuity rates statistics do not make good reading for the those approaching retirement and with still so many retirees still not taking advantage of the open market option surely it is time for the government to make it compulsory for providers to force people down the open market route. Of course many providers rely on the fact that retirees neglect to shop around when looking for their retirement income.

Figures revealed by Money Facts yesterday revealed that annuity rates continue to fall. In fact, in the last month alone, the figures report that the rates for a 65 year old male with a £10,000 fund purchasing a level annuity without any guarantee period has fallen by 1.1% (from £604 to its £597). The fall in rates for a female purchasing an equivalent annuity was 1.2%.

This is, without doubt, incredibly disappointing news and adds to concerns about the even tightening finances faced by those retiring imminently.

This highlights an ever growing requirement for people to shop around for the best annuity rates and experts and media outlets alike are now actively promoting exploring the Open Market Option. The Open Market Option means you can take your pension fund and explore the potential rates available to you on the open market – you do not have to simply take the first offer made to you by your provider.

With rates looking set to continue their slide in the near future and a quick recovery looking increasingly unlikely, this option is perhaps the best way to secure the most you possibly can with your fund through annuities.

Recently at annuitysupermarket.com we had an enquiry from a future retiree that had saved his pension with a leading brand, and assumed as they were a leading brand they would automatically be giving him the best annuity rates. Well actually in this particular case it could not have been further from the truth.

The retiree had saved his pension with Scottish Widows and had accumulated at fairly substantial fund of £194,138.48 of which £17,086.73 was in Protected Rights.

One of our specialist advisers took full details from him and asked him the questions to see if he qualified for enhanced annuity rates, which in this particular he did not. The adviser obtained the following figures for the client:

Using the full fund of £194,138 an income of £13,170 on a single life basis without guarantee.  This income will remain level throughout your lifetime. This represents an annuity rate of 6.78% compared to an income of £10,652.28 offered by Scottish Widows which represented an annuity rate of 5.48%.   If you chose to include the guarantee of 10 years (5 on the Protected Rights as this would be the maximum allowed) the income would reduce to £12,926 per annum on the same basis.

If you wish to take the maximum tax free cash sum of £48,534.50 which represents 25% of the total funds this would leave £145,603.50 to purchase an annuity of £9,870 per annum on a single life basis without escalation or a guarantee.  To include the 10 year guarantee option the income would reduce to £9,687 per annum on the same basis.  The income offered for these options with Scottish Widows would be £7,989.48 per annum without guarantee and £7,948.32 per annum with a five year guarantee.

As you can see from the detail, big brands do not necessarily give you the best annuity rates and you need to shop around to find the best rates.

The sale of enhanced annuities has again increased and now make up a third of all annuities sold. These enhanced annuities are bought by retirees that take the trouble to shop around and use the right to the ‘open market option‘.

According to Towers Watson, consumer interest in taking out enhanced annuities which provide bigger pensions for those with serious medical conditions or with negative lifestyle factors such as weight, smoking and occupation is set to continue. Enhanced annuities, also known as impaired life annuities, make up over a third of all annuities sold (by premium volume) in the open market in the UK.

These enhanced annuities can quite often get up to 40% plus for those that do take the time to see an independent financial adviser and complete a medical information questionaire. There is a real apathy overall in the retirement options sector with most retirees just accepting the quote from their pension provider. Industry figures say two thirds do not bother to shop around and are therefore missing out on these enhanced annuity rates.

Adam Benson, Independent Financial Adviser at annuity specialist Retirement Solutions said, “I have seen significant increases to retirement income of the clients that have come to me exercising their open market option, as IFAs we know the right questions to ask and can often get 30 to 40% increases in the rates they were offered by the pension provider they saved with. In my opinion not enough people are using the open market option and are therefore missing out on enhanced annuities.”

Many pension products, especially some of the older contracts such as section 226 retirement annuity contracts have built in guaranteed annuity rates (GAR). A guaranteed annuity rate, GAR for short, is a fixed annuity rate, written into your pension contract, at which you can convert your pension fund, irrespective of what open market annuity rates are doing at that time.

What are the advantages of guaranteed annuity rates?

The main attraction of guaranteed annuity rates (GAR) is that when they were calculated and written into pension contracts annuity rates were considerably higher than they are now, and pension companies of course had no idea that annuity rates would tumble as they have. GARs can produce annuity payments for life that are higher than anything you can get on the open market.

What are the disadvantages of guaranteed annuity rates?

Many of the pension contracts that guaranteed annuity rates are written into were designed to vest at age 65 and therefore the GAR does not apply until that age. Another point to watch out for is that they will normally only provide an annuity on your own life (single life option, so no spouse benefits) and often will not provide for post retirement increases, so if you require an annuity that escalates each year to combat inflation, this may not be possible. A further point and one that has caught many out is the fact that many of these guaranteed annuity rates were only valid until age 75. This means that you would only get the GAR until age 75 after which you would revert back to the insurance company standard rates, these could be considerably less that the GAR rates. As always here at annuitysupermarket.com we recommend you seek annuity advice from an independent financial adviser.

Life expectancy has increased considerably over this century therefore once you reach retirement in is important to get the best annuity rates from your pension pot, this is because the income from your annuity will probably have to last you on average over 10 years.

The majority of annuities in the UK are provided by the big Insurance Companies such as Prudential, Aviva, Standard Life, AXA and Legal and General to name a few. They all have different annuity rates for different ages, sex and postcode. Because of this it is very important to shop around a few months before you retire. There was a recent article that was published in America that stated that the British spend more time on Christmas shopping than they do on shopping for the best annuity rates.

Shopping around for your annuity is not that difficult and generally perhaps the best way is to consult the advice of an indpendent financial adviser, he or she will then research the whole of the market including some of the annuity providers you probably have not heard of. If you can it is perhaps also better to find a firm of  independent financial advisers that specialise in annuities. There are many such firms an just typing “annuity rates” into Google should bring up a reasonable list of specialist firms.

It is also important to ensure that you check to see if you may qualify for enhanced annuities as these can give a significant increase to your annuity income.

Annuity Supermarket recommends a specialist annuity independent adviser Retirement Solutions and you can reach them on 0800 043 6701