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Retirement incomes rocket to 2½ year high

Retirement incomes rocket to 2½ year high

Category: Retirement

Updated: 06/02/2012
First Published: 24/05/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Retirees have been given a much needed boost after pension incomes climbed to their highest level for two and a half years.

An improvement in the performance of personal pension funds together with higher pension annuity rates means retirement incomes are now at a level not seen since October 2008.

The research, conducted by, shows pension fund performance has continued to steadily improve since the turn of the year.

Having posted average returns of 13.8% in 2010, their second successive year of double digit growth, the gains have continued into 2011.

According to the survey, someone who had paid £100 gross per month into a Mixed Investment 40%-85% Shares pension fund for 20 years would have built up a pension fund of £41,964 if they retired now, compared with just £40,343 in December 2010.

At the same time, positive momentum has continued to build in the rates available through pension annuities, the product purchased with a pension fund to pay out a regular income to retirees.

The survey showed the amount a typical annuity pays out has increased for the sixth month in a row, and is now 3.65% higher than at the beginning of the year.

Since the start of 2011, the average income paid out to a male aged 65 with a pension pot of £10K who purchases the most popular type of standard pension annuity (single life, level without guarantee) has increased from £607 a year to £629.

For an equivalent female, average annuity income has increased from £568 a year to £589.

Taken together, a combination of the two factors has seen average pension income increase by 1.7% compared with a year earlier, and by 18% compared with May 2009.

Using the scenarios already explained, it means a male retiree can now expect an annual income of £2,639, compared with £2,593 twelve months ago.

Although the trend towards rising retirement incomes will be welcomed by personal pension savers, it is also pointed out that the latest figures still remain a shadow of their former selves.

A decade ago the same individual would have received an annual income almost 60% higher at £6,496, while fifteen years ago the average retirement income was 80% higher at £13,327 a year.

Given that high inflation is currently eroding the purchasing power of retirees at a worrying rate, Richard Eagling, editor of Investment Life & Pensions Moneyfacts, said the fact that annual retirement incomes have been rising since the turn of the year will at least offer a crumb of comfort for those on the verge of retirement.

"However, much of this recent increase is due to higher annuity rates, a trend that is unlikely to persist in the long term," he added.

"Sadly, the recent uplift in average retirement income may ultimately prove to be little more than a temporary respite in the uphill battle to secure a comfortable retirement."

If you're nearing retirement, the new Moneyfacts Annuities Service offers all the help you could ever need to make the most of the pension funds you have built up.

Annuities from different providers can be compared, while people who smoke or have health issues can take advantage of an enhanced annuity.

The whole process can be completed online, but if you get stuck at any point or have a question that needs answering, an expert is ready and waiting to give you a call.

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