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The upcoming Moneyfacts UK Personal Pension Trends Treasury Report reveals that pension fund growth is becoming more subdued, with this quarter's figures even suggesting there could be an overall fall this year. At the same time, the drawdown market faces its own challenges.
The latest figures show that the average pension fund value fell in the first quarter of 2018, before reversing in quarter two and seeing some positive growth in the third quarter. Yet even the highest average growth of 4.4% is still quite low when looking historically, well below the average pension fund growth of 15.7% and 10.5% seen in 2016 and 2017 respectively.
As it stands, the average growth over this calendar year was 1.2% at the end of the third quarter, but the fact that the average pension fund has fallen by 4.1% in October so far could push it to an annual decline of 2.9%. This would be the first year-on-year loss seen since 2011.
|Period||% pension fund growth|
|Q4 2018 to date (1 October 2018 to 22 October 2018)||-4.1%|
First of all, don't panic. While average pension fund performance may be heading into negative territory overall, that doesn't mean your own pension funds are necessarily decreasing. Check your pension's performance, and if you're not sure or you're not liking the level of growth you're seeing, now might be the time to speak to an adviser about your options.
It may be a good idea to schedule a regular pension review in no matter how your retirement fund is coming along – you never know what the market's going to do next. And if you don't feel confident enough to talk to an adviser, you could read some of our retirement guides first.
As for pension drawdowns? The report also revealed that the withdrawal rate on those drawdown policies where a regular withdrawal is being made has increased from 4.7% in 2016/17 to 5.9% in 2017/18, according to Financial Conduct Authority figures. This means retirees are withdrawing more from their pensions, raising questions of the sustainability of such policies.
Compared to an annuity, which allows retirees to gain a fixed income for life, drawdown relies on people not running out of funds while they still need them. Ideally, a drawdown pension would allow you to take out a small proportion of your funds at a time, with the continuous additions of interest resulting in the pot only decreasing slowly, allowing you to live without worrying about spending your pot too soon.
However, Richard Eagling, head of Pensions at Moneyfacts, warned: "It is still unclear as to whether drawdown customers are making sustainable withdrawals, although the fact that the average pension fund is down by 2.9% so far this year indicates that this could soon be a greater issue."
He continued: "Pension freedoms have placed a much greater onus on individuals to take control of their own retirement planning, and in an environment where freedom has been so positively promoted, it is no surprise that the most flexible decumulation product – drawdown – has become the most popular choice. However, in facilitating this trend, pension freedoms have encouraged far greater numbers of individuals to take on the longevity and investment risks associated with drawdown themselves."
So, if you're unsure whether drawdown is worth the risk, you could consider seeking out a pensions adviser, or even using the no-obligation Moneyfacts Annuity Service – if you end up deciding that an annuity isn't for you, there's no harm done.
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