According to retirement specialists MGM Advantage, overall rates are up by 12% since January, helping annuity rates to recover to a two-year high.

Aston Goodey at MGM Advantage said: “Annuity rates have had a really bumpy ride, but we have seen a steady improvement this year with rates hitting a two-year high, largely driven by the returns available on bonds and gilts. This is great news for people looking to generate a retirement income, although it will always pay to shop around for not only the right shape of income but also the highest rate.”

The report also revealed the gulf between the best enhanced annuity rate and worst standard annuity rate is around 38%, meaning many people with health or lifestyle conditions could be missing out on thousands of pounds of income.

Up to 70% of people at retirement could qualify for a better rate because of a health or lifestyle condition, and yet only 6% of consumers who purchased an annuity in the second quarter of the year without advice purchased an enhanced annuity (this compares to 45% when advice is provided or people shopped around).

The average annuity today would pay 11% more income than the equivalent annuity purchased a year ago, or £6,111 additional income over retirement.

However, Goodey also added: “The increases we have seen this year need to be viewed relative to the record lows of 2012 and the overall trend of a decline in rates. The pressure on rates will continue due to SolvencyII, improving longevity and low returns on gilts and bonds, all of which will dampen down a recovery of rates in the near term.”