One key determinant of annuity rates is the return on government bonds or gilts (shown in the grey line, above). While returns on these have fallen sharply in the decade since the financial crisis, they are expected to rise if and when interest rates recover toward long-term historic norms.
This should help annuity rates, and is already beginning to appear in the recent improvement in payouts, Mr Burrows said.
For most pension savers who, in retirement, do not buy an annuity, the alternative is to leave the money invested in a portfolio of shares from which to draw investment income. Here there is no certainty either of dividend income or capital growth, and an investor is likely to be uncertain as to how much income they can safely draw.
The dividend yield of UK shares has been broadly level at 4pc, dipping to a low of 2pc in 1999.
Mr Burrows said: “As the dust settles on ‘pension freedoms’ and people realise that certainty of income is important, more and more are becoming open-minded about buying an annuity – even if they only do this later in life when the payouts are higher. Many expect a slow, continued improvement in annuity rates. By the same token, many are anxious about the outlook for global shares.”