Annuity incomes rise

Consumers looking for a secure retirement income gained from an annuity will be pleased to see that the average annuity has increased by 1.4% between April and June this year, compared to 0.7% growth the previous year.

Although annuities began to fall in popularity after pension freedom rules were introduced in 2015 allowing all retirees to take pension drawdown for the first time, those wanting a secure retirement income continue to opt for an annuity.

One reason why annuities have been falling out of favour is their poor performance over the last few years, however this year has seen a growth in both pension pots and annuity incomes. As Rachel Springall, finance expert at Moneyfactscompare.co.uk, explained: Due to a combination of pension fund growth and a rise in annuity rates, there has been a notable improvement to the average retirement income between April and June 2021. Those who saved £100 gross per month for 20 years into a personal pension would have built a pot of £53,378 on average and taking an annuity at age 65 would result in a yearly income of £2,273. This has risen from April to June 2020 where the pot stood at £46,318 and the yearly income at £1,875.”

Saying this, while annuity performance has improved, retirees may still get a better return on their pension pot by opting for pension drawdown. Unlike an annuity, pension drawdown does not guarantee an income and instead, retirees take regular lump sums from their pension pots to fund their retirement. This allows the remaining money in the pension pot to continue being invested, which can result in the pension pot continuing to grow. Alternatively, if the stock market performs badly, it can result in pension pots falling in value. More information about pension drawdown can be found in our guide on how pension drawdown works.

With different options available to retirees, it may be worthwhile for those nearing retirement to speak to an independent financial adviser to discuss their retirement income options. A financial adviser will not only be able to suggest the best option for a person’s individual circumstances but will also be able to take a look at the pension pot and provide advice on what type of retirement lifestyle can be achieved with the savings accumulated, as well as options available to further boost retirement incomes.