Income is second highest for 10 years

The income you can receive from a pension depends on the growth in equity markets while accumulating your funds and annuity rates when you take your benefits.

Our index chart of retirement income is based on a 65 year old with £100,000 buying a single life, level annuity. The chart assumes the fund is valued at £100,000 in July 2008 and invested in a fund that tracks the FTSE-100 index.

Fig 1: Chart comparing retirement income since July 2008

The above chart shows that in July 2008 a fund of £100,000 could provide an income of £7,908 pa and this decreased to an all time low after the financial crisis as equity markets crashed, reducing the fund and buying power to only £5,173 pa by February 2008, the lowest in the last ten years.

The index chart shows the buying power of the original fund recovered to £7,641 pa in April 2011 and £7,808 pa in June 2014 before reducing to £5,885 pa in August 2016 following the Brexit vote when annuity rates reached an all time low.

For those invested before buying an annuity, a rise or fall in equities can make a significant difference to the income they can expect.

The combination of rising equity markets and annuity rates has seen the retirement income recover 33.5% or £1,977 pa since the low in August 2016. It is now at the second highest level of retirement income in the last 10 years of £7,862 pa.

Although annuity rates are 29.8% lower since July 2008, the FTSE-100 index has increased 41.7% and this would benefit those investing in flexi-access drawdown.

Over the lifetime of the annuitant based on the Office of National Statistics (ONS) we would expect a male to live for 17.3 years. This would mean he will have £34,202 more over his lifetime and for a female she can expected to live for 20.4 years increasing her income by £40,330.

For those planning to take their benefits as an annuity this could be a good time while the combination of annuity rates and equity markets are at a high.