Annuity rates have increased by 4.6 per cent from their September lows, bringing them back to July levels, analysis by Moneyfacts has revealed.
The "mini revival" came after standard annuity rates fell by 6.4 per cent in the third quarter of 2016. Enhanced annuity rates fell even further - 10 per cent - over the quarter.
Moneyfacts' analysis coincided with news that LV was proposing to withdraw from the enhanced annuity market. It also came a week after Standard Life said it would stop selling annuities on the open market.
Moneyfacts found that, even with that 4.6 per cent recovery, standard annuity rates were still down 11.6 per cent since the start of the calendar year, making 2016 "the worst ever year for annuity rates".
Enhanced annuity income fared even worse, falling by 15 per cent since the beginning of 2016.
Since the June referendum, standard annuity rates - based on an annuity with a £10,000 purchase price bought at age 65 - are now down 6.4 per cent.
Richard Eagling, head of pensions at Moneyfacts, said the "already testing" economic environment for annuity providers had deteriorated further after the vote to leave the EU, and the Bank of England's decision to cut interest rates in August.
He said the latter, combined with the BoE's new quantitative easing programme, triggered large falls in gilt yields.
However, he said a subsequent recovery in gilt yields gave providers "more room to manoeuvre" when setting their annuity pricing.
“We had reached a tipping point where annuity rates had fallen to such an extent that many retirees no longer regarded them as value for money, even though they provided the security they desired," he said.
"Instead, retirees have been delaying annuitising until rates recover, or chasing higher yields through riskier alternatives. It will be interesting to see whether these latest annuity income rises are enough to convince them to return to annuities in order to fix their incomes for life.”
Commenting on LV's decision to withdraw from the enhanced annuity market, Mr Eagling said it was "sad" that there would be less choice.
"One of the main reasons behind the introduction of pension freedoms was the sense that the annuity market was not working in the best interests of all consumers," he said.
"But with competition diminishing, it is hard to escape the conclusion that the annuities market is working even less effectively post-pension freedoms, even though many retirees still crave a secure lifetime income.
"A growing number of annuity providers seem content to focus on their income drawdown propositions instead."
james.fernyhough@ft.com
