Payout rates soared by 6pc this summer alone, industry figures show – the fastest rate of growth since 2009.
Overall, savers today can earn 10pc more a year from their pension pot than someone who retired in January 2013, largely thanks to economic recovery in Britain.
These better deals are a welcome boost for savers approaching retirement as they return pensioners' nest eggs more quickly during old age.
However, experts warned that the income available on annuities was still "historically poor value" – and that some insurance firms had dragged their feet while rivals boosted rates. An annuity is a type of insurance that converts a pension pot into a guaranteed income for life. They are bought by more than 400,000 people a year
In January, someone with a £100,000 pension pot could have secured an income of £5,230 a year, according to annuity firm MGM Advantage. By July, the available payout on this pot size was £5,410. Today, it has risen to £5,742 – a 10pc rise compared with January and 6pc compared with July. This newspaper predicted in June that such increases were due.
Now experts say many annuity companies – especially those serving only their existing customers – have failed to keep pace with the rate increases made by competitive firms such as Aviva, Canada Life, Legal & General, Just Retirement and Partnership.
Richard Williams, director of The Annuity Bureau, a broker, said the headline rise of 6pc this summer "disguised differences between providers". He said that even among the top three providers, one had increased rates by less than 5pc, while another had added more than 7pc.
He added that the "enhanced" annuity rates for customers who suffer from medical conditions had not enjoyed the same bounce. For instance, rates for smokers have increased by just over 1pc. Mr Williams said this "possibly reflected unsustainable over-pricing" of enhanced annuities earlier in the year.
Crucially, many firms do not actively disclose the rates they pay. In August, trade body the Association of British Insurers (ABI) published these hidden rates for the first time. They showed that there was a 30pc gap between the best and worst standard rates. This can mean a loss of £1,444 on the yearly payout from a £100,000 pension pot, compared with an identical offer at other firms – worth £36,100 over a 25-year retirement.
The full range of rates is due to be published by the ABI only every two months. Sources said the next publication was "imminent".
It is expected to show that a lack of competition among firms closed to new business – often described as "zombie" pensions companies – has meant that rates have increased only a fraction. If so, it indicates that they have expanded their profit margins behind closed doors.
Industry figures show that 52pc of pension savers still opt to take an annuity from their existing provider at retirement, and so hundreds of thousands are at risk of lining the pockets of these companies.
Tom McPhail, an annuity expert at Hargreaves Lansdown, said: "When savers buy direct from their insurance company there is no pressure for the firm to raise rates."
Annuity rates have risen primarily because the return on government bonds, called gilts, has jumped since January. The 15-year gilt yield – seen as the benchmark for annuity rates – has risen by nearly 30pc this year, The Annuity Bureau said.
Is an annuity right for you?Don't rush into buying an annuity - it is probably the biggest financial decision you will ever make. This is because the purchase is irreversible, so get it wrong and you will be locked in for life. It pays to take financial advice.
Many savers are unaware that there is no need to buy an annuity. The alternative is called "income drawdown". Here, your pension remains invested in the stock market as you take an income. Withdrawals are typically subject to a cap, which is reviewed every three years. From November, a 65-year-old can take £7,080 a year from a £100,000 fund.
Your personal circumstances will determine the correct course of action. An annuity might still be best - and if you suffer health problems you may be entitled to double the payout. An online directory of financial advisers and annuity brokers is to be launched within weeks.