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17 May 2017

Retirement incomes hit highest level since 2014

Retirement incomes have reached a 33-month high, according to a report from personal finance website Moneyfacts.

The latest Moneyfacts Personal Pension and Annuity Trends Treasury Report reveals a second consecutive quarter of growth, with the average retirement income (based on someone saving into a personal pension and then buying an annuity) having risen by 5.2% during the first three months of the year, and by almost 15% compared with this time a year ago.

Average retirement incomes are now at their highest level since July 2014, driven by strong pension fund returns and higher annuity rates. It comes at a time when record numbers of people are turning to personal pensions and their contributions are at record highs.

Illustrating the increase over the past year, Moneyfacts said that someone who had paid £100 per month into an average personal pension fund for the preceding 20 years would have built up a pension fund of £47,864 if they retired in April 2017, compared with £42,457 if they had retired a year earlier.

With annunity rates rising by 1.7%, 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 at the end of last year and £1,983 in the first three months of 2016, an increase of 14.6% year-on-year.

“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,” commented Richard Eagling, head of Pensions at Moneyfacts.

“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 [of pension saving], but 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.”

Copyright © M2 Bespoke 2017

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