New research published by Moneyfacts has revealed that 2013 was a record year for pension annuity rates, being welcome relief for retirees who have seen the value of their pensions fall dramatically since 2007.
Figures show that 2013 posted a record year of growth, despite annuity rates falling to an all-time low in March. The remainder of the year, however, saw rates creep back up again, and by the end of 2013 the average income paid to a 65-year-old with a standard level without guarantee annuity rose by 9.1% based on a £10K purchase price, and by 10.5% based on a £50K purchase price.
This represents the biggest annual increase in annuity rates since Moneyfacts began recording this data back in 1994, with overall rates being at their highest levels seen since June 2012. Significantly, this is also the first year since 2007 that saw annuity income increase, putting a much-needed end to five consecutive years of decreasing rates.
It's great news for those approaching retirement, and despite income levels still being subdued on a historical basis – annuity income remains 36% lower than it was 15 years ago – it's still a definite move in the right direction.
The combination of increased competition in the annuity market and rising gilt yields are key drivers behind this record rise, with providers showing signs of significant re-pricing activity in the final few months of 2013.
As such, rates have increased across the board, with the most telling figure perhaps being that the difference in rates offered by the top five most competitive annuity providers narrowed to just 2.7% – down from 12.2% at the start of the year.
Competition is most definitely rising as providers are starting to adapt to the gender neutral pricing directive that was implemented in December 2012, and as more providers hope to attract business and the economy stabilises it should hopefully mean annuity rates continue to rise.
"When it comes to the annuity market it has become customary in recent times to report another disappointing year of falling annuity rates. However, 2013 proved to be an excellent year for annuity income with rates halting their historical decline and actually increasing. Given the extreme difficulties of securing a comfortable retirement income, this increase in annuity rates is welcome news for retirees."
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