Pension Fund Recovery Slows | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 27/10/2020

Although pension funds are starting to recover, new data shows that between July and September the recovery fell significantly compared to the previous three months, putting into doubt how quickly pension funds will recover and when older workers will be able to retire.

Data due to be published in the Moneyfacts UK Personal Pension Trends Treasury Report found that between July and September (Q3 2020), average pension funds returned just 1.7%, which is significantly lower than the increase of 13.3% between April and June (Q2 2020). As a result of the lower growth, average pension funds are still 2.6% lower than at the start of the year.

Commenting on this data, Richard Eagling, head of pensions at Moneyfacts, said: “The performance of pension funds weakened noticeably during Q3 2020 meaning that pension returns remain in negative territory for 2020. Once again, these figures highlight the challenges that individuals face in being able to fund a comfortable retirement.”

Annuity rates increase

There was some good news for those heading into retirement however, as annuity rates increased slightly during Q3 2020, but again, rates are still lower than at the start of 2020.

The average annual standard annuity income for a retiree aged 65 (based on a single life level without guarantee annuity) increased by between 0.5% and 1.3% during Q3 2020. For those looking for an enhanced annuity income, rates rose slightly less, between 0.4% and 0.6% during this same period. Although annuity rates have increased, the average annual standard annuity income is up to 4.9% lower than at the start of the year and the average enhanced annuity income up to 3.2% lower.

Annuities offer retirees a secured annual income throughout their retirement, but since the pension freedoms introduced in 2015, many have opted for a pension drawdown instead. Pension drawdown enables retirees to withdraw money from their pensions when they choose. Those choosing pension drawdown do have the risk of running out of pension savings if they withdraw too much from their pension too soon.

Eagling added: “These pension fund figures will raise concerns about the sustainability of retirement incomes given that recent Financial Conduct Authority (FCA) data has revealed that the proportion of drawdown investors that are making regular withdrawals at an annual rate of 8% or more increased from 40% in 2018/19 to 42% in 2019/20. There will be plenty of individuals that will need to adjust their retirement planning to take account of this year’s poor pension fund performance.”

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