Average annuity rates increased by less than 1% in the first quarter of the year driven by static gilt yields and flat returns on corporate bonds, according to figures compiled by pension specialists MGM Advantage
The firm told The Actuary that the rates were examined before the March Budget, but since then prices had not changed much, increasing by only 0.83%.
The firm said that retirees aged 65 who purchased a standard annuity with a £50,000 pension pot received an average annual income of £2,874, while an enhanced annuity produced an average income of £3,470.
Its data revealed two distinct markets, with a 30% difference between the top enhanced rates and bottom standard rates. The gaps between rates also show a two-tier market, with the difference between the best and worst enhanced rates at 7%, compared to 12% in the standard market.
'Following the strong rise in annuity rates throughout last year, rates were flat in the first quarter of 2014. This is in part due to gilt yields, as well as the returns available on corporate bonds,' said Aston Goodey, MGM's sales and marketing director.
'Given the uncertainty in the market at present, it is worth remembering that customers who are looking to secure a sustainable income for life face the same decisions as they did before the Budget, and are unlikely to get a different outcome now to post [April] 2015 [when the Budget's pension reforms are implemented]. The cost delay needs to be considered, as does the potential for annuity rates to go down in the future.'
Goodey added that the Budget proposals would have an impact on rates going forward, but said it was too early to call how this would play out.
He said: 'We are already seeing reduced demand as some people are postponing decisions until April 2015. This could drive annuity rates down. However, the competitive open market providers are likely to compete even more aggressively for business which might lead to tactical pricing decisions and improved rates for enhances customers.'