I am glad that Mr Burrows (Money Marketing, July 12) has, during the last
couple of years, changed his stance on annuities and is going with the tide
embracing reform. However, I find his article misleading and think Muggles
could be far from Quidditchs in.
As you know from previous letters of mine, I am in favour of the ideas Dr
Oonagh McDonald's Retirement Income Working Party recommendations. These
have since been advanced by Jacqui Lait – in the run up to the general
election – and by the Institute of Actuaries.
However, these recommendations still place women, who have the greatest
deficit in retirement income, at a further disadvantage since female
annuities are even more derisory than those for men.
Please could Mr Burrows explain the arithmetical basis of his assertion
that “The MRI has been calculated at about £140 per week and this
would be secured by purchasing an index-linked annuity. Currently it would
require a fund of between £35,000 and £50,000, depending on age,
to buy this annuity.” My calculations produce much higher figures.
Since only age is mentioned, one assumes that Mr Burrows has defaulted to
the male sex for his annuity rates.
According to my information, the minimum income guarantee figure is
£7,308.60. Subtract from this the basic state pension of £3,770
and this leaves a minimum amount of income to be funded by an index-linked
annuity of £3,538.60.
Like all annuity rates, index-linked annuity rates can vary on a daily
basis but according to Money Facts, the best RPI-linked (without guarantee)
I can find (as at July 16) for a woman of 65 is from the Prudential at
£605 per £10,000.
Thus for a woman of 65 to fund the difference between the basic state
pension and the MRI would cost £58,489 – well beyond Mr Burrows
maximum figure. Even for a 65-year-old man it would cost £49,769 –
only just within Mr Burrows estimate.