Annuity demand in June jumped 32% compared to April, and activity was up on an annual basis, climbing by 14% compared to June 2014.

But it is still 36% below the level seen two years ago.

The gap between the best and worst rates available now stands at 81 basis points, according to IFP corporate member IRESS, while the average pot size also increased at the end of Q2, rising by 3% compared to March 2015.

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Analysis of data from over 150,000 advised single life annuity cases found that annuity sales recovered somewhat in the last two months of the second quarter, after falling to their second lowest level on record in April, following the reforms taking effect.

Demand in April fell 7% compared to March 2015, and by 30% year on year. Since 2012, demand had only been lower in December 2014.

Despite the improvement in May and June, activity remained well below the level seen before the pension flexibilities were announced, and 36% below 2013 levels.

The average rate for a single life annuity reached a new six month high in June 2015 – standing at 5.09%. This was 23 basis points higher than rates seen in March (4.86%), as improving economic data and an increasing likelihood of rate rises impacted gilt yields.

Alongside improved rates, average pot sizes have risen, the report found.

Overall, the average pot at the end of the second quarter of the year stood at £67,504, representing a 5% increase compared to March and a 3% increase compared to the same month in 2014. Due to the more positive outlook across both rates and average pension pot sizes, average incomes for those choosing to annuitise also rose by the end of the second quarter. In June the average income stood at £3,438, 10% higher than the average income secured in March 2015.

Dave Miller, commercial executive general manager at IRESS, said: “Pensions Freedom Day hit annuity activity hard in April, as those at retirement rushed to explore alternative options. In the months that have followed, the mini-bounceback points to demand stabilising, buoyed by improving rates.

“However, with further changes in the market on the cards – not to mention new investment and hybrid products likely to launch – we have not seen the end of disruption and innovation in the retirement market.

“For those considering annuities, a rate rise bodes well, and as we head towards a more normal interest rate environment, we should see this trend continue in the longer-term. This will underpin demand from those looking for a form of guaranteed income.

“However despite rates rising, it is clear that shopping around remains a key issue for consumers, given the growing gap between the best and worst rates. On top of this, there is still more work to be done on promoting consumers’ eligibility for enhanced annuities. Enhanced income as a result of a medical condition is a key attribute for annuities, and improving consumer awareness of this will be crucial to the long-term take-up of annuities.”