Despite the current economic turmoil, the rates on level annuities, which are used to convert a pension pot into a retirement income, have risen by five per cent in the past 12 months, according to the Alexander Forbes Annuity Bureau.

The best rate on offer for a level annuity, under which the annual income paid does not increase, is now pounds 7,100 a year for a 60-year-old man with a pounds 100,000 pension pot, up from a best- buy of pounds 6,765 in October 2007.

At the same time rates paid on annuities for people who smoke have held steady.

But inflation linked annuities, which typically rise each year in line with the Retail Prices Index, have fared less well in the face of soaring inflation, which increases costs for the provider.

The best rate available has fallen by four per cent during the past 12 months dropping from pounds 4,204 to pounds 4,026 for a 60- year-old man with a pounds 100,000 pension fund.

The group warned the trend for falling inflation-linked annuity rates was likely to continue for the foreseeable future.

David Marlow, director of the Alexander Forbes Annuity Bureau, said: "With economic doom and gloom in the headlines, it's good to be able to report some good financial news.

"Following (annuity) rate cuts last month, we've again seen a few small increases in level annuity rates as we enter October, putting level rates some five per cent higher than they were in October last year.

"Unfortunately it's likely that we are at or close to the end of the upward run for level rates.

"The signs were there last month when many providers cut rates and with the next movement in interest rates likely to be down, to try to boost the economy, it is hard to see level annuity rates maintaining these levels in the long term."

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