Pension incomes rally in 2011 Boost from shares recovery and annuity rate rise

25 May 2011

Higher annuity rates give you a better retirement income 

Latest figures show strong growth for pension funds in 2010-11 and an increase in annuity rates of 3.6% over the last 6 months. Both factors are good news for those about to retire.

Stock market recovery

Investment analysts, Moneyfacts, show average returns of 13.8% for pension funds in 2010 and continuing growth in 2011. This marks a welcome recovery since the calamitous stock market crash of 2008. Many in money purchase (defined contribution) pension schemes will have seen the value of their pension fund rally in the last two years. The latest figures show that annuity rates have also staged a mini-recovery, so if they are approaching retirement and looking to turn their pension savings into pension income they could enjoy another welcome boost.

Annuity rate rise   

Annuity rates have fallen drastically over the past 15 years, in some cases by over 50%. But since the start of 2011, these drops have been stemmed and shown an increase of 3.6%. For a man aged 65, purchasing a single life, level annuity with a £10,000 pension pot, this would result in an increase in the annual income he could expect, from £607 to £629. For a woman, buying an annuity on the same basis, the increase is 3.7%. For anyone investing a larger sum, the rise could bring a substantial bonus, boosting the amount they receive each year of their retirement.

Long term prospects  

The long term prospects for annuities is less rosy. The factors behind the historic downward trend show no signs of diminishing as increasing life expectancy means that retirement is likely to last longer and that annuities are going to have to pay out accordingly. 

Commenting on the latest figures, Which? Pensions expert, Ian Robinson, said:

'Although the upturn in annuity rates is good news for people about to retire, it is still worth searching the market for the best rate, and making sure you get a higher-paying enhanced annuity if your state of health entitles you to one. 

'Those with longer to wait should keep a careful eye on their pension fund. If it hasn't performed in line with the rest of the market, they should check to see where it's invested and make sure their retirement plans are still on track.'