If you're approaching retirement, you'll probably be starting to think about the kind of income you could achieve in your post-work years. Well, we have good news – thanks to a combination of strong pension fund returns and an uptick in annuity rates, average retirement incomes have risen by 11% in just three months!
That's according to our new research, which can be seen in the latest Moneyfacts Personal Pension and Annuity Trends Treasury Report. The data shows that the average retirement income that can be achieved for someone saving into a personal pension and then taking an income through an annuity increased by 11% during the final three months of 2016, a welcome turnaround from previous quarters, and meaning that annuity incomes have hit the highest level since July 2015.
Let's say you'd contributed £100 per month into an average personal pension fund over a 20-year period. If you retired now, at age 65, with a standard level without guarantee annuity, you'd have built up a pension fund of £46,534 over that 20-year period, compared with £46,126 if you'd have retired in October 2016.
When the 10% rise in annuity rates in the final three months of the year is also factored in, this equates to an average annual retirement income of £2,159 if you retired today, compared with £1,946 if you'd bought a typical annuity in October – and if you'd managed to save even more each month, your income could be even higher.
So just why have things improved so much in the last few months? Well, strong pension fund returns and higher gilt yields are just the beginning – a lot of it has been to do with rising competition in the annuity market.
There's been a growing appetite among annuity providers to win new business of late, and there are signs that many are beginning to price more competitively again. That competition has been intensifying after a period of caution, which unfortunately saw several providers leave the open market. There are now just eight providers active in the open market, a drop of seven since the pension freedoms were introduced and an all-time low, but the fact that those eight providers are competing again has got to be good news for those approaching retirement.
"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 2013," said Richard Eagling, head of Pensions at Moneyfacts. "Q4 2016 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.
"The considerable improvement in annuity income and the potentially more favourable pricing environment could provide an incentive for retirees to re-evaluate the value offered by annuities."
Now could be a great time to reconsider your annuity options – contact our no obligation annuity planning service for more information
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.