Pension income can be received in many forms, with annuities providing one of the most commonly used methods. Annuities are essentially an insurance policy which gives the retiree guaranteed income for the rest of their life.
As they detailed: “The average annual standard annuity income for an individual aged 65 (based on a single life £10,000 level without guarantee annuity) increased by 0.7 percent in Q2 2020, meaning the average annuity income is still 5.3 percent lower than at the start of the year.
“The considerable upturn in pension fund performance and slight increase in annuity rates combined to boost the retirement incomes available to those saving into a personal pension and looking to annuitise.
“For example, an individual who had saved £100 gross per month into a personal pension for 20 years would have built up a final pension fund of £46,318.
“Using this to take an income through an annuity at age 65 means that they will now receive just £1,875 per annum, an increase of 12.7 percent on Q1 2020 when the average retirement income was at a historic low.
According to Pension Wise, anyone seeking to take out an annuity should ask their provider if their pension pot has any special features that should result in them receiving a better deal, an example being a guaranteed annuity rate.
They should also ask their provider about the various types of annuities they offer and evaluate how much tax they’ll pay on the annuity income.
Customers should, just as with other financial products, shop around and compare providers to get the best deal possible.
Pension Wise provides a tool on their website which will estimate how much a person’s guaranteed income could be, which only requires information on how big a pension pot is and when the user expects to take the money.