Strong rise in rates and equities

Where there is a combination of both annuity rates and equities rising, those people that remain invested before they buy an annuity can benefit significantly.

Fig 1: Chart comparing annuity rates and FTSE-100 Index

The above chart shows how the FTSE-100 Index and annuity rates for our benchmark example have increased since August 2016 after the EU Referendum.

Our benchmark example for a person aged 65 with £100,000 buying a single life, level annuity would receive £4,696 pa in August last year rising by 14.86% or £698 pa to £5,394 by the start of February.

For those that remain invested before buying their annuity, the combination of both rising rates and equities has resulted in a significant rise in annuity income.

A pension fund reflecting the FTSE-100 index would have increased by 8.2% since August 2016. For example, a fund value of £100,000 at this time would offer an income of £4,696 pa. The fund would now be £108,199 and with the rise in rates for our benchmark example the income from this fund would be £1,140 pa or 24.2% higher at £5,836 pa.

In terms of lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £19,836 more over his lifetime. For a female she can expected to live for 20.4 years increasing her income by £23,256.