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Annuity arithmetic doesn&#39t add up

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&#39s 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.

Hilary Woodward

Dereham, Norfolk


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