The rate of a conventional annuity – income paid from a pension scheme – has seen significant falls in the last year, according to an industry index.

MGM Advantage, an annuity provider, said its annuity index showed a fall in the average rate of 3.65 per cent between June 2010 and September 2010.

The index, which tracks rates on a quarterly basis, showed that enhanced annuities had fallen by 3.04 per cent in the same period. Comparing June 2009 to June 2010, the fall for conventional annuities has been 6.98 per cent, and 5.32 per cent for enhanced schemes.

Craig Fazzini-Jones, director of MGM Advantage, said: “Our findings show the importance of shopping around for the best possible deal when buying an annuity, but sadly only around one in three people are moving providers for the best income.”

People with health conditions that can affect life expectancy are able to apply for enhanced annuities, but Fazzini-Jones said ‘not enough people’ were declaring health conditions that could allow them to qualify for as much as 20 per cent more income a year.

The MGM index showed a widening of the gulf between higher and lower rate annuities. In the third quarter of 2010 the gap between the top and bottom quartile grew from 35.6 per cent to 36.83 per cent for men, and from 34.7 per cent to 37.22 per cent for women.

“The gulf between the best and worst annuity rates for conventional and enhanced products is becoming wider, and with rates in general falling it’s more important than ever to consider alternative retirement income solutions that can really make the most of people’s retirement savings,” Fazzini-Jones added.

© Fair Investment Company Ltd