Stick or twist risk: It could take 41 years to replace lost annuity income if you delay purchase for two years

Annuities may well have come under fire over the past couple of years for the derisory returns they offer for decades of saving, but putting off buying one in the hope the market improves is a risky venture.

When to cash in retirement savings is a huge conundrum for thousands of people with defined contribution pension pots, particularly considering that annuity rates were at record lows this time last year.

Rates have improved by between five and eight per cent since the turn of the year, but choosing to delay a purchase in the hope of further improvements could mean losing out on income that could take decades to replace, and could particularly backfire if rates don't get better.

Enhanced annuity provider MGM Advantage has calculated that if someone delayed buying an annuity for two years and come 2015 the rates are the same as they are now, then it could take them up to 41 years to make up for the income they lost in those two years.

Were rates to improve by 6 per cent in that time, then it would take 19 years to make up for the shortfall.

Andrew Tully, of MGM, said: 'We have seen annuity rates improve over the first half of the year, from their historic lows in 2012, but the long-term outlook for rates is uncertain. It would take a betting man to take a punt on annuity rates improving by at least 6 per cent over the next couple of years to make any delay worthwhile.'

To read the full article from the Daily Mail, click here