Pension fund recovery falters

Key retirement trends during Q3 2020 

  • The average pension fund increased by just 1.7% in Q3 2020. 
  • 71% of pension funds generated positive returns during the quarter. 
  • Average annual standard annuity income increased by between 0.5% and 1.3%. 
  • Average retirement income for someone saving into a pension fund and opting for an annuity increased by 1.7% but remains 6.7% lower than at the start of the year. 

​New data from the soon to be published  Moneyfacts UK Personal Pension Trends Treasury Report  has revealed that pension fund performance faltered during Q3 2020, after posting its strongest quarterly performance for over a decade in Q2 2020. 

The average pension fund returned just 1.7% during Q3 2020, considerably lower than the increase of 13.3% during the previous quarter (Q2 2020). It means that pension funds are still on average 2.6% lower than at the start of the year.  
The more testing market conditions are reflected in the fact that 71% of all funds surveyed generated positive returns, down from 95% during Q2 2020. The top three performing Association of British Insurers (ABI) pension sectors were Asia Pacific excluding Japan (5.5%), North America (4.9%) and Asia Pacific including Japan (4.8%). 
Annuity rates edge up 
Annuity rates also increased slightly for the second consecutive quarter. The average annual standard annuity income for an individual aged 65 (based on a single life level without guarantee annuity) increased by between 0.5% and 1.3% in Q3 2020, depending upon the purchase price. However, the equivalent enhanced annuity income made less progress, rising by between 0.4% and 0.6%. Despite these latest increases, the average annual standard annuity income is up to 4.9% lower than at the start of the year, while the average enhanced annuity income is up to 3.2% lower. 
The slight upturn in pension fund performance and annuity rates in Q3 2020 led to a 1.7% rise in 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 £46,897. Using this to take an income through an annuity at age 65 means that they will now receive £1,908 per annum, which is still 6.8% lower than at the start of 2020. 
Richard Eagling, Head of Pensions at Moneyfacts, told B365:“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. They will also 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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