MGM Advantage Age 75 rule

Views from MGM Advantage on the age 75 rule

5 July 2010

Aston Goodey, Director of Sales and Marketing says, "The recent Emergency Budget went some way towards giving people more flexibility in retirement. But changing the obligation to purchase an annuity from the age of 75 to 77, is only really tackling part of the problem, and could result in people losing out on valuable income in retirement.

“If a customer takes out an annuity, they benefit from what is called ‘mortality cross subsidy’. The longer they live, the more they benefit as they are effectively rewarded for living longer. Indicatively, at age 75, this benefits customers to the tune of 1.65% while at age 76 it could be 1.83%.

“By taking Drawdown and not annuitising, customers do not benefit from this mortality cross subsidy, and could be losing out on as much as £16,500 if they live for 15 years in retirement*. That is purely down to the value of mortality cross subsidy. The great news is that you can now have the flexibility of Drawdown within an annuity contract due to innovation in the flexible annuity market, giving you the best of both worlds and meaning you no longer need to defer annuitisation.

“The point is that flexibility is not necessarily about delaying annuitisation. It’s about considering your options and making a rational decision based on your circumstances. Last week the Chancellor hit the nail on the head when he referred to the need to restore 'dignity in retirement', but perhaps the focus should be in ensuring all customers consider their retirement income options, rather than default into a fixed annuity for the rest of their life or delaying a decision that could be costing them money in the long-run?"

* Based on comparing cumulative income plus remaining fund value of the MGM Advantage Flexible Income versus Income Drawdown, £100,000 pot, male age 60, single life basis, maximum income taken at outset and 7% growth projection basis.