The pandemic means retirement funds are struggling to make money, but what does this mean for you?
Pensioners must face the reality of lower incomes as retirement fund performance is knocked off track by the economic fallout of coronavirus.
Savers’ pension funds are on average 2.6% lower than at the start of the year, according to data from the Moneyfacts UK Personal Pension Trends Treasury Report.
Only 71% of pension funds managed to generate a positive return during the third quarter of the year, compared to 95% in the previous three months, and on average they returned just 1.7%.
This is considerably less than the 13.3% in gains they made during the second quarter of the year – the strongest quarterly performance for over a decade – dragging down the returns for the year to date.
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The top three performing Association of British Insurers pension sectors were Asia Pacific excluding Japan (5.5%), North America (4.9%) and Asia Pacific including Japan (4.8%).
For someone saving into a pension fund and opting for an annuity, their income increased by 1.7% during the third quarter but remains around 6.7% lower than at the start of the year.
For example, an individual who had saved £100 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 get £1,908 per annum, 6.8% lower than at the start of 2020.
Average annual standard annuity income for a pension saver aged 65 increased by between 0.5% and 1.3% during the third quarter, but is still up to 4.9% lower than at the start of 2020, Moneyfacts found.
The equivalent enhanced annuity income – for those with health conditions likely to shorten their life – made less progress during Q3, rising by between 0.4% and 0.6%, and is up to 3.2% lower year to date.
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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.”
He said this latest research will also raise concerns about the sustainability of retirement incomes. Recent Financial Conduct Authority data reveals the proportion of drawdown investors 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,” Eagling said.
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