Annuity income already improving

Income from pension annuities have already improved from the low for the year and have recovered the falls earlier in the year.

The above table shows 15-year gilt yields are higher by 33 basis points and for our benchmark example of a 65 year old buying a single life, level annuity with a fund of £100,000 the income has increased from £5,272 pa at the end of May to £5,433 pa at the end of June or a rise of 3.0%.

Annuities have improved since reaching a low for the year in April of £5,108 pa for our benchmark example and is now £325 pa higher.

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 £5,622 more over his lifetime. For a female she can expected to live for 20.4 years increasing her lifetime income by £6,630.

European growth prospects improve

The ECB is increasingly confident with growth prospects for the Europe economy and would consider higher interest rates which have also been suggested by Mark Carney, Governor of the Bank of England.

However, it is unclear whether all this means there are opportunities to scale back quantitative easing or simply make adjustments to parameters while leaving the policy stance unchanged.

Investors are particularly sensitive to any suggestion of easing monetary policy following the Federal Reserve in 2013 ending their QE programme resulting in a dramatic bond sell-off and the 15-year gilt yields rising from a low of 2.04% in mid 2012 to a high of 3.42% by October 2013.

For annuities the recent rise in yields is unlikely to continue as the ECB will be more careful in the language they use when stating the position of the QE programme although it is a welcome boost for people retiring in the short term to gain some extra income from the very low annuity rates.