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03 May 2013 last updated
Annuities income boost as FTSE index and service sector improve

Further growth in the UK service sector after manufacturing data shows some improvement helped to send the FTSE-100 higher to 6,521 and for those people that remain invested before retirement means a 1% increase in annuity income.

Income from annuities has increased by 1% as the FTSE-100 index rises 61 points to 6,521 after the purchasing managers' index (PMI) for services increased to 52.9 in April up from 52.4 the previous month. A score above 50 indicates expansion and below contraction.

Earlier in the month the PMI for manufacturing showed a slowing in the rate of contraction from 48.6 in March to 49.8 in April and significantly improved on the forecast.

This has helped the FTSE-100 index up and as most people retiring and taking their benefits remain invested the gain is immediately realised with a higher pension annuity income.

Annuities income boost as service sector improves
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Equity markets take annuity income higher

Equity markets have improved significantly since they reached a recent low of 4,944 in June 2011. At 6,521 now they are 1,577 points or 31.8% higher and for people with a pension fund that tracks the index this means the gain more than off-sets lower annuity rates which are now improving.

For example a 65 year old male retiring in October 2011 with a fund of £100,000 for a single life, level basis could have received a of £6,093 pa. Annuity income has reduced by £468 pa or 7.6%, however, the pension fund could be higher at £131,800 and provide an annuity income of £7,413 pa.

As a result the income from the pension fund would be £1,320 pa or 21.6% higher. According to the Office of National Statistics (ONS) the life expectancy for a male is 17.8 years and this would result in £23,496 more income.

For a female she would have received an annuities income of £5,712 pa in October 2011 and this would have increased to £7,413 pa after gender neutral pricing was introduced. The increase for females would be £1,701 pa or 29.7% higher and they expected to live for 20.4 years according to the ONS giving an extra £34,700 of income over their lifetime.

Further annuity enhancements possible

For people in good health initial incomes could be increased by another 25% higher than the standard rates using investment backed or with profits annuity. The risks are slightly higher than a standard annuity since the income can go down as well as up over time so this type of option is more suitable for those with other arrangements such as a final salary scheme or other personal pensions.

It may take 20 years for this income to reduce to the level of a standard annuity so is beneficial for people that would like as much income now while they are healthy and can enjoy the extra money from an annuity.

For people with severe medical conditions such as diabetes, heart conditions or cancer an impaired annuity can improve incomes by up to a further 40% over a standard annuity.
For less severe lifestyle medical conditions such as high blood pressure, Cholesterol, are a smoker or are overweight up to 18% more income could be paid from an enhanced annuity.

News related stories:
UK annuity income gains with FTSE-100 index 2% higher
Retirement annuity income up as FTSE-100 index reaches a new high
UK annuity income higher as service sector and markets improve
Highest annuity income could fall with poor data for manufacturing
Best annuity income and markets fall 1.6% after US Fed stimulus fears
Pension annuity income outlook good as service sector grows
Related internet links:
Telegraph - UK service sector hits eight-month high
Guardian - UK service sector grows faster than expected
Telegraph - FTSE 100 closes near five-year high
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