Tuesday 8 September 2009

Annuity Payouts Improving but All Over the Map

Annuity rates move more or less in tandem with interest rates - as interest rates fall, so do annuity payouts. Not long ago, the IFID centre posted a time series going back to 2000 showing sample annuity payouts and implied longevity yield, described as a measure of an annuity's return. It's a handy and welcome way to judge the trend and whether things are getting more advantageous for a retiree to turn a lump sum into an annuity. The recent trend seems to be upwards towards higher payouts e.g. a 65 year old male could get about $680 monthly income at the end of June (it's the latest data apparently) per $100,000 initial premium versus $650 or so last September. The highest it has been was about $740 in 2000-2001 so there is some way to go before rates get really attractive.

It is also worth noting that it is essential to shop around. Cannex has one freebie table of current annuity rates offered by the various providers showing payouts for a single life male with a 10-year guaranteed payout. There is a wide range - a 65 year old can get as little as $594 monthly from Standard Life to as much as $667 from Canada Life or Great_West Life, a 12% difference.

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