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Retirement incomes at 33-month high

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
10/05/2017

Retirement incomes have risen 5.2% in the first quarter of 2017 and by almost 15% over the last year, taking them to a 33-month high, according to a report.

For the second quarter running, the average retirement income for someone saving into a personal pension and then taking income through an annuity (a guaranteed income for life) has increased, according to the Moneyfacts personal pension and annuity trends treasury report.

It put the rise down to a combination of strong recent pension fund returns and generally higher annuity rates.

A person contributing £100 per month into an average personal pension fund over a 20-year period and retiring at the age of 65 would have built up a pension fund of £47,864 if they retired now, compared with £42,457 if they had retired in April 2016.

When this pension pot is converted into an annuity, it equates to an average annual retirement income of £2,273 today compared with £2,159 in the October to December period last year and £1,983 in the first three months of 2016.

The average retirement income has risen by 14.6% over the last year and is at its highest level since July 2014.

The average annual income payable from a standard level without guarantee annuity for a 65-year-old increased by between 0.4% and 2.3% in the first three months of 2017 (depending on purchase price), while the average pension fund delivered a return of 4%.

Overall, 95% of all pension funds delivered positive growth in the first quarter, with 6% of these posting double-digit growth.

Richard Eagling, head of pensions at Moneyfacts, said: “The record numbers saving into personal pensions and defined contribution pension schemes have placed even greater importance on the ability of funds to deliver strong performance if individuals are to generate an adequate retirement income.

“The fact that the average pension fund has now delivered positive returns in every calendar year since 2012 has arguably made it easier for individuals to accept the investment risks inherent in the defined contribution pension model than might otherwise have been the case. Whether the recent enthusiasm for personal pensions and the low opt-out rates for auto-enrolment will continue should we see a sustained period of falling investment returns remains to be seen.”