Annuity rates shot up by a record 13 percentage points in 2013 after more than 20 years of falls, according to figures compiled by pension specialists MGM Advantage
Annuity rates have been falling steadily since 1990 and declined sharply once the economic crisis began in 2007.
But rates in 2013 showed a marked a recovery, growing to 5.8% from 5% in 2012. Retirees aged 65 who purchased an average annuity with a £50,000 pension pot generated an extra £7,560 income over the course of their retirement, compared to the previous 12 months.
'Annuity rates have recovered strongly over the past year, bouncing back from the record lows seen at the end of 2012,' said Aston Goodey of MGM Advantage.
'The the rise in rates has been driven by the market calming after the introduction of gender neutral rates, increased competition among open market providers, and the better returns available on underlying investments.'
He added: 'It is too early to call whether the annuity rate rally has run out of steam, but the record rate increases witnessed in the third quarter of last year tailed off significantly in the last quarter.'
Goodey added that as gilt yields ease back, with the market predicting no interest rate rises until 2015 at the earliest, the prospect of further strong rises in annuity rates seemed unlikely.
The index also highlighted the value of shopping around. MGM said the difference between the best and worst conventional rate is around 17%, with the best rate generating £9,555 more income over the average retirement. The equivalent for an enhanced annuity is around 24%, or £14,616 more income over the average retirement.