Budget 2013: QE extension could cause annuity rate drop, says MGM Advantage

They warn that annuity rates are likely to fall further following the decision.

Andrew Tully, Pensions Technical Director, MGM Advantage commented:

"Annuity pricing is determined by a number of factors, including the yields available on UK gilts. The likelihood of more quantitative easing will further impact gilt yields and is likely to therefore drive down annuity prices. Our Annuity Index has tracked rates down 20% in only three years. 

"People are stuck between a rock and a hard place. Anyone approaching retirement who needs to generate an income from their pensions face some stark choices and will need to carefully consider their options. One of the most important decisions you can make at retirement is to shop around for the best annuity rate rather than simply accept what is on offer from your pensions company.

“If you are worried about locking into a low rate then adopting a mix and match approach to your retirement income needs might be suitable. For example, you could secure a guaranteed income through a level annuity with half of your pension pot, and invest the balance through an investment-linked annuity. This approach provides a potential hedge against inflation and the opportunity for investment growth. Clearly you need to be comfortable accepting some investment risk.  Seeking financial advice is crucial to ensure you use the most appropriate solutions for your individual requirements as well as securing the best annuity rate.”