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7 September 2012 last updated
Retirement annuity income benefits from share price rise

Retirement annuity income for pensioners at retirement has been helped by the rise in share prices after the ECB announced details of plans to support the euro.

Equity markets around the world have been boosted with the FTSE-100 index higher by 119 Points at 5,777, the Dow jones index 244 up at 13,292 and European markets up between 2.2% to 4.91%.

Pensioners about to purchase their retirement annuities that are still invested in equities will benefit as a larger pension fund will mean a larger pension annuity and more income for their lifetime.

The increase in markets is after the European Central Bank (ECB) meeting presented the debt rescue plan designed to buy the bonds of countries that request a bailout. The ECB is prepared to purchase an unlimited amount of sovereign bonds of struggling countries such as Spain and Italy to prevent the cost of borrowing reaching unaffordable levels.

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Annuity income rises 2% with equity gains

Investors with a pension portfolio of well managed investments with exposure to the UK, US and Europe will have experienced increases of about 2% although not all funds will have increased by this amount.

For pensioners retiring now to purchase their pension annuities they should consider converting this fund to cash to secure the gains they have received. Purchasing a UK annuity could take up to four weeks for some providers and there is a risk that equity markets will fall once the market has discounted the benefits of the ECB plan. Markets briefly reached a low of 5,267 on 18 May and have since increased to 5,777 or a gain of 9.6%. This counters the fall in annuity rates over this time and therefore for those taking benefits and buying an annuity it is important to lock in the gains while they can.

For example, a male aged 65 with a fund of £100,000 in May invested in UK equities could purchase an annuity of £6,021 pa on a single life level basis. By September retirement annuity rates have reduced and the income is now only £5,746 pa. UK equity markets have increased since May from 5,267 to 5,777 and if his fund reflected this rise would now be worth £109,600 and he could purchase an annuity £6,297 pa thereby increasing his annuity income at retirement.

Retirement annuity rates last reduced in August and have now reduced further than the fall in gilt yields suggesting there may be the possibility for an increase in annuity rates shortly.

News related stories:
Pension annuities gain as bailout for Spain sees markets up
Annuity income at retirement reduces with weakening global economies
Annuity income lower as equity markets continue to fall
Retirement annuities for pensioners benefit from equity market surge
Retirement annuities income benefit from higher European markets
Related internet links:
Guardian - Draghi's eurozone plan boosts shares and euro
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