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3 January 2013 last updated
Buying annuity income boost from UK manufacturing data

UK manufacturing returned to growth reaching a 15-month high in December following strong domestic demand and if this continued it would help boost equity markets to the advantage of pensioners buying annuity income.

Strong manufacturing performance would increase the expectation of better corporate results and help equity markets stay high or even increase this year.

As the majority of pensioners remain in equities until buying annuities, a positive economic outlook will maintain a strong equity market and mean higher pension fund values at retirement.

The purchasing manager index (PMI) for manufacturing reached a 15 month high of 51.4 last month where a figure above 50 indicates growth and a figure below contraction.

In November the index was 49.1 and October 47.3 suggesting a trend of improving output after the UK suffered a double dip recession last year.

Annuity income boost from manufacturing data
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Manufacturing only 10% of UK economy

Despite the grow in manufacturing this only represents 10% of the UK output and it is the PMI figures for services and construction due shortly that will give a better indication of future prospects.

Pension fund values will depend more heavily on global confidence than just the UK economy in 2013 such as the recent US fiscal cliff, Eurozone debt crisis and the slowdown in growth for China. Markets are currently rising with the relief that the US have reached a deal to postpone the worst of the spending cuts and tax rises in the US to avoid the economy returning to recession.

The higher confidence in the global economy has seen investors moving money away from UK government bonds to higher risk investments such as Eurozone sovereign debt offering higher yields resulting in UK gilt yields increasing as the price falls.

Annuity rates are mostly based on the 15-year gilt yields and these have increased by 23 basis points so far this year. As a general rule a 23 basis point increase would translate to a 2.3% rise in annuities and this coupled with high fund values is good news for pensioners. It is difficult to know if annuity providers will increase their rates as they are recovering from the surge in applications as a result of the EU Gender Directive and Unisex annuity rates.

News related stories:
Pension annuity income outlook good as service sector grows
UK annuity income higher as manufacturing sector expands
Best annuities threat for pensioners after UK service sector output falls
Pension annuity income could be hit by Triple dip recession
Pension annuity income may struggle as UK manufacturing slows
Related internet links:
Guardian - UK manufacturing his 15-month high
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