This discussion paper finds that since 2002 compulsory annuities no longer provide an
actuarially fair pension. Hence annuities are a poor investment giving returns of less
than 85% in present value terms.
The paper uses a data base of annuity rates collected from MoneyFacts monthly
reports since 1994. This includes all products available on the market for Male Only
aged 55 to 75 in 5 year increments. The present value of future annuity streams and
their resultant moneys worth values (MW) are calculated and analysed, with particular
attention to the actuarial aspects. The approach and results are independently
confirmed giving a high degree of confidence in the findings. The analysis progresses
on from the literature review of recent published work
The paper plots historic trends of annuity payout rates and their MW values and
highlights some significant characteristics of the annuity market. While annuity rates
can be expected to fall as life expectation rises no logical reason can be found to also
justify the recent and significant reduction in their MW value below the actuarially
fair value of 1.0.
This research provides a valuable insight for developing strategies to guide the
pensioner when formulating his income drawdown plans, especially in the light of.
recent A-day changes
