1 May 2012 last updated

Annuities income and pension fund up as Wall Street hits four year high

Dow Jones index on Wall Street reaches a four year high will benefit pensioners with a balanced portfolio retiring now and purchasing their annuities. For anyone retiring with their pension fund invested in equities they will benefit from improving markets and in particular if they have a diversified portfolio and exposure to US funds which means more income when it comes to buying an annuity. Pensioners may have seen an increase of over 25% in this portion of their fund as the Dow Jones rises 66 points to reach 13,279. This represents a four year high and based on better than expected US manufacturing data. Based on the Institute of Supply Management (ISM) index this showed that the manufacturing activity in the US increased from 53.4 in March to 54.8 in April when a decrease was expected and a figure greater than 50 indicates that manufacturing is expanding.

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Poor UK figures could lower pension funds

The boost to US markets was seen in the UK with the FTSE-100 index up 74 points at 5,812 and European markets were mixed with some markets down and other up.

However, UK manufacturing has stalled with the manufacturing PMI index 50.5% in April compared to 51.9% in March. Even in China the manufacturing PMI index of 53.3% in April is only slightly better at than the 53.1% in March. However, this has not been reflected by the equity market and if pensioners are planning to retire now to purchase their pension annuity and remain invested they should consider converting their funds to cash to ensure to protect their pension fund from a decrease due to equities.

There are also risks to annuity rates as weak economic data could force the Bank of England's monetary policy committee (MPC) to consider Quantitative Easing (QE) to inject money into the economy by buying government bonds and gilts. This would increase the price of the gilt decreasing the yield and as annuity rates are based on the 15-year gilt yields, any return to QE would eventually reduce annuity rates and therefore the pension annuity income for people retiring.