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21 January 2013 last updated
UK annuity income boost as FTSE index reaches five year high

The FTSE-100 index continues upwards to a five year high of 6,181 with the Dow Jones index closing at 13,649 boosting the pension funds of pensioners that remain invested before retiring and increasing their UK annuity income.

Pensioners that remain invested up to the point they purchase their annuities are benefiting from a rising equity market. The FTSE-100 index had started December at 5,871 and is now 5.2% or 310 points higher.

This increase will offset the fall in annuity rates over this period of time due to the EU Gender Directive that introduced unisex annuity rates where male rates decreased by 2.77% and female rates increased by 3.95%.

For those taking their benefits now they should consider transferring to a cash fund to avoid any sudden decrease in equities that could reduce their income before buying annuities as they may not have time to wait for a recovery.

UK annuity income boost FTSE index high
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Retirement income benefits from strong equity market

Since reaching a low of 4,944 in October 2011 the FTSE index has increased by 1,237 points or 25.0%. Over this time period annuity rates have decreased by 11.8% so pensioners invested in tracker funds that reflect the FTSE index would have seen a gain in the retirement income they receive.

For example, a male aged 65 with a fund of £100,000 could buy annuity income of £6,093 pa on a single life, level basis in October 2011. Today the value of the fund has increased to £125,000 although the UK annuities decreased, the income would still have increased to £6,716 pa or £623 pa more. Based on the Office of National Statistics (ONS) a male aged 65 would live for 17.8 years and this would provide an extra amount of £11,089 over his lifetime.

Economic news good for more growth

The markets have been bolsted by better economic news from China where growth has increased slightly from the 13 year low of 7.4% to 7.9% although this figure is lower than the 9.3% growth in 2011. This compares to growth in the US of only 2% and contracting economies of the Eurozone.

For the US the recent negotiations to increase the debt ceiling from the current level of $16.4 trillion to a higher amount are likely to be successful with the House of Representatives Republican leaders aim to pass a four month extension. No figures are yet agreed although the amount will be sufficient for funding the period of the extension.

The extension in the debt ceiling is likely to remove a potentially negative factor influencing equity markets so pensioners retiring in the next four months are likely to experience a period of stability until the issue returns in the summer.

Annuity rates are likely to increase during this period as gilt yields remain at the highest level for the past six months. This coupled with rising equity markets would mean february to May producing a faviourable time to buy pension annuity income before more difficult decisions need to be made in the US and the Eurozone.

News related stories:
Pension annuities benefit as FTSE index at pre-financial crisis high
Pension annuity income and equities rise after fiscal cliff deal
Annuities income reduce as equities fall with fiscal cliff deadlock
Retirement annuity income kept high with Federal Reserve stimulus
Pension annuities income and markets boosted with Greece deal
Pension annuity income and markets lower with US fiscal cliff
Related internet links:
Reuters - House seeks vote to extend US debt limit
BBC - China growth picks up from an economic low
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