Pensions can be worth thousands of pounds more a year than expected as average retirement incomes reach a 33-month high.
Retirement income has risen by 5.2% in the second quarter of 2017, compared to the previous three months – and almost 15% against a year ago.
Pensioners have not seen such good returns from their investments since July 2014.
The Moneyfacts Personal Pension and Annuity Trends Treasury Report [subscription] explains improving pension returns are boosted by a record high FTSE and better annuity rates, which are driving the increase.
Pension funds have seen an average 12.7% rise on contributions in the past year, with retirement income up 14.6%.
How much is the rise worth?
In financial terms, says the report, a saver putting £100 aside for a pension over a 20-year working life has a fund of £47,864 on retirement now.
A similar saver retiring in April 2016 would have had a pension pot of £42,457.
Converting the fund to an annuity would see an annual income of £2,237 today and £1,983 in the first quarter of 2016.
The increase is partly due to annuity rates rising 1.7% in the past 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,” said Moneyfacts head of pensions Richard eagling
Don’t forget to watch fund performance
“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.
“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.”
Although saving into a pension is important, Eagling also explained that a regular fund review and shopping around for providers with the best charging structure are also vital.
“It’s important to keep an eye on the performance of your chosen pension funds so you can make the most of your retirement,” he said.
According to HM Revenue & Customs, more savers than ever are paying record sums into personal pensions.