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1 February 2013 last updated
UK annuity income higher as manufacturing sector expands

The manufacturing sector expanded for the second month in a row although at a slower rate increasing confidence in equity markets pushing UK annuity income higher for pensioners.

The purchasing manager index (PMI) for manufacturing data continued the expansion following the December 15-month high of 51.4 although the figure for January was at a lower rate of 50.8. A figure above 50 indicates growth and a figure below contraction.

Equity markets welcomed the results increasing 70 points to 6,347 the highest level of the year. As the majority of people retiring remain invested until they buy annuities it means their pension fund will be higher and generate more annuity income.

Last quarter experienced a contraction in Gross Domestic Product (GDP) of 0.3% and the expansion for January will help reinforce the positive markets and keep pension funds high at least in the short term.

 
UK annuity income and manufacturing sector
 
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Annuity income will increase this month

The rise in equities is a welcomed boost for people retiring now after the falling annuity rates which reached an all time low in January even though gilt yields increased. Annuities are based on the 15-year gilt yields and last month these increased by 29 basis points and as a general rule this would mean a 2.9% increase in annuity rates.

However, standard pension annuity rates actually decreased by 0.46% which means rates are expected to increase by 3.36% on average.
Providers may have been recovering from the rate decreased as Unisex annuity rates were introduced by the EU Gender Directive on 21 December 2012. This resulted in male rates decreasing by 2.77% and female rates increasing by 3.95% although the expected increase already takes this into account. For the latest updates see Annuity Rates Review.

Other options to help increase annuity income

The combination of increasing equities while investors are positive about the economy and rising annuity rates can make a significant difference to the income at retirement.

People can further enhance the income by 30% this by using an investment backed or with profits annuity. An individual can accept a slightly higher risk the income if they have pension income such as a final salary pension or more than one personal pension fund.

Alternatively if they suffer from a lifestyle medical condition such as high blood pressure, Cholesterol, are a smoker or are overweight they could receive a higher income from an enhanced annuity. For more serious medical conditions such as diabetes, heart conditions or cancer an impaired annuity can increase incomes by 40% over standard annuities.

News related stories:
Pension annuity income outlook good as service sector grows
Buying annuity income boost from UK manufacturing data
Best annuities threat for pensioners after UK service sector output falls
Pension annuity income could be hit by Triple dip recession
Pension annuity income struggles to rise as UK manufacturing slows
Related internet links:
BBC - UK manufacturing activity edges higher
Telegraph - UK manufacturing expands for second month
Guardian - UK manufacturing drops back
SM - Manufacturing sector expansion continues
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