Annuity rates have increased by 10.6 per cent since a market low in August 2016, according to Retirement Advantage.

This is in response to providers reacting to improving gilt yields and a competitive market. As a result, the average annuity rate on a £50,000 pot is 5.18 per cent or £2,591 a year, compared to a market low of £2,343 in August. This would improve the total income received over a typical retirement by £5,208.

The difference between the worst standard and best enhanced annuity is currently 26 per cent. The majority of people looking for a lifetime income qualify for enhanced rates because of their health or lifestyle. And yet only 40 per cent of people currently shop around for their annuity and therefore the majority will miss out on improving their income by not getting an enhanced rate.

Retirement Advantage pensions technical director Andrew Tully said: “Annuity rates were hit hard by falling gilt yields in the immediate aftermath of the vote to leave the EU. Fortunately gilt yields are on the way up again. Providers are also pricing to attract business, and these two factors have combined to push annuity rates back up to pre-referendum levels.”

“The continuing pressure on rates comes from people living longer, although there is evidence this trend is slowing. While we all come to terms with Brexit and the change in US presidency, yields on gilts are likely to be volatile. There is light at the end of the tunnel in the form of clarity around insurers’ capital positions from Solvency II, while competition in the market is also likely to help rates. But this all combines to make the outlook for rates uncertain.

“People approaching retirement will need to think about how they can bank an income to pay the bills, and create enough flexibility to protect their pension from any nasty surprises. This is a tall order, but the new hybrid retirement accounts allow people to simply and easily choose an appropriate level of guaranteed income alongside the flexibility of drawdown.”

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