Call for annuity rethink as pensioner poverty set to rise Pensioners living longer means income will need to rise

Traditional annuities where the income does not rise in line with inflation are on the way to extinction, pension experts have predicted.

Pensioners will be forced to review the way they take their income over the coming years as they seek to avoid falling into poverty in retirement, according to MGM Advantage.

The firm pointed to research published by the Department of Work and Pensions last week showing that 20-year-olds today are twice as likely to reach 100 as their parents, a trend that it warned could send pensioner poverty soaring.

Households where the main occupant is aged 75 or over typically spend about 16,000 a year, MGM estimated, meaning that if they were to live to 100 they would need some 400,000 to maintain the same standard of living.

Increased longevity has already driven down the income paid by traditional fixed annuities, which are taken out by the bulk of retirees but don't offer protection against inflation. And that will lead to greater demand for alternatives including inflation-linked annuities and plans combining income with the potential for investment growth, claimed Aston Goodey, sales and marketing director at MGM Advantage.

Goodey said: "As people in retirement look for ways to enhance their income, we expect to see a long-term trend of more choosing investment-backed annuities as opposed to conventional fixed term ones."

Mike Morrison, head of pensions at AXA Wealth, agreed, saying: "With annuity rates at their lowest levels for many years, consumers should be asking themselves whether a conventional annuity, which pays a set amount each year for the rest of their lives, or a more flexible approach is the most appropriate option for them."

"The notion of retiring one day and then taking a set income for life has little relevance for many today, and this will only become more widespread in time."