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24 April 2013 last updated
UK annuity income gains with FTSE-100 index 2% higher

UK annuity income was boosted for people remaining invested before retiring as equity markets rise with 2% gain for the FTSE-100 after speculation that the ECB will act to stimulate the eurozone with an interest rate cut.

The FTSE-100 index increased by the largest amount this year of 126 points to end at 6,406 as there is a hope that the European Central Bank (ECB) may cut interest rates.

For those remaining invested with a portfolio tracking the FTSE-100 index their pension funds will have increased by about 2% which means their income from UK annuities will also be 2% higher.

The FTSE-100 index started the year at 5,897 and has increased 509 points or 8.6% to the current level. The rise counters recent falls in annuity rates which reached an all time low in January due to the EU Gender Directive and have since recovered slightly to the benefit of those retiring and buying an annuity.

UK annuity income and FTSE 2% gains
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Equities higher on hope the ECB cuts rates

Equity markets are higher as investors are hopeful the ECB will reduce interest rates. The 15-year gilt yields have also increased 5 basis points to 2.25% which will help uk annuity rates indicates investors are more confident moving funds away from the safety of UK government bonds to other investments offering a higher return, such as in the eurozone.

After poor manufacturing data and the feeling that Europe has reached the limits of the austerity measures as far as the public is willing to accept, markets are hoping interest rates in the EU may be reduced from the current 0.75% level. The last time they were reduced was in July 2012 when they were at 1.0%.

The European Commission president Jose Manuel Barroso said that austerity should be combined with public spending in order to stimulate growth. Equity markets around the world were higher with the Dow Jones 152 points up at 14,719 and European markets between 2.0% and 3.2% higher.

Initially analyst expected the rate of 0.75% to be maintained and possibly reduced next year as inflation was still at 2.0% for the 17-nation eurozone. More pressure is on the ECB to cut interest rates as Germany has reported a fall in manufacturing confidence as exports fall due to lower demand from the rest of the eurozone and China.

Annuity income 13.6% higher for people retiring

The combination of rising equities and annuity rates has improved the income in retirement. The FTSE-100 index rise this year of 8.6% annuities higher by 4.6% will benefit people that have remained invested.

For example our benchmark example income a person with a fund of £100,000 could have received an income of £5,373 pa for a single life, level pension annuity in January 2013 and their fund would have increased to £108,600 today. Annuity rates are also higher which means the income from their pension fund would be £6,108 pa, an in of £735 pa or 13.6%.

Over the individuals lifetime the Office of National Statistics (ONS) would expect a male to live for 17.8 years and this would result in £13,083 more annuity income over his lifetime. For a female the ONS would expect her to live for 20.4 years resulting in £14,994 more annuity income over her lifetime.

There is always the risk that equity markets can go down and people retiring now should consider if they should convert their pension fund to cash before buying an annuity to lock in the growth. It can take up to four weeks to transfer a fund if the open market option offers the highest annuity rate which could mean a lower annuity income should equity markets fall.

News related stories:
Retirement annuity income up as FTSE-100 index reaches a new high
UK annuity income higher as service sector and markets improve
Annuity income lower as markets and gilts fall on Italy election deadlock
Best annuity income and markets fall 1.6% after US Fed stimulus fears
Retirement annuities income increases with US equity market gains
UK annuity income boost as FTSE index reaches five year high
Related internet links:
Reuters - FTSE gains as ECB rate cut talk
Guardian - FTSE biggest rise based on ECB cutting rates
BBC - ECB keeps rates unchanged at 0.75%
Guardian - EU near austerity limit
Guardian - Fall in German confidence adds to eurozone woes
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