PensionsJan 31 2017

Retirement incomes see double digit increase

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Retirement incomes see double digit increase

Retirement incomes have seen a significant improvement, according to a a report released by online comparison site Moneyfacts.

The Moneyfacts Personal Pension and Annuity Trends Treasury Report found that the average retirement income for an individual saving into a personal pension, and then taking an income through an annuity, increased by 11 percent during the last quarter of 2106.

This was its highest level since July 2015.

The report assessed the impact of the changing value of personal pension pots and annuity rates on retirement incomes.

The figures were based on an individual contributing £100 gross per month into an average personal pension fund over a 20-year period and retiring at the age of 65 with a standard level without guarantee annuity.

The research shows that someone who had paid £100 gross every month into an average personal pension fund for the preceding 20 years would have built up a pension fund of £46,534 if they retired now, compared with £46,126 if they had retired in October 2016.

When the 10 per cent rise in annuity rates over the last quarter is also factored in, that equated to an average annual retirement income of £2,159 today compared with £1,946 at the start of the fourth quarter of 2016.

 Richard Eagling, head of pensions at Moneyfacts, said: “For the first time since pension freedoms were introduced, annuity rates have undergone a sustained upturn, rising for four consecutive months – something we have not seen since the period between June and October 2013. 

“The considerable improvement in annuity income during the fourth quarter of 2016 and the potentially more favourable pricing environment could provide an incentive for retirees to re-evaluate the value offered by annuities.

"The fourth quarter was a rare period in which both pension fund performance and annuity rates moved upwards, providing a welcome boost to those saving into a personal pension and looking to purchase an annuity.”

Although questioning that the figure may be as high across the market, Alan Solomons, director of Alpha Investments and Financial Planning, said: “Interests rates and annuities are so low that it doesn’t take too much of a move to find that this might represent a potential 11 per cent of what is being paid out at the moment.”