Could pensions be taking a heavier toll from Coronavirus than property investment?

by Property 118

9:36 AM, 29th April 2020
About 5 months ago

Could pensions be taking a heavier toll from Coronavirus than property investment?

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Could pensions be taking a heavier toll from Coronavirus than property investment?

The average pension fund fell by 15.2%, its worst quarterly performance on record and only 11% of pension funds avoided posting a loss during the quarter.

The Average annual annuity income fell by 6% to an all-time low with the average retirement income for someone saving into a pension fund and opting for an annuity falling by 18.7% to a historic low.

New data above from the latest Moneyfacts UK Personal Pension Trends Treasury Report, set to be published later this week, reveals the heavy toll that the Coronavirus pandemic has taken on individuals planning for their retirement. The research shows that individuals at both the accumulation and decumulation phase of retirement have encountered the toughest conditions of any generation yet.

Pension fund performance

At the accumulation phase, the record number of individuals now saving into a defined contribution pension plan suffered heavy falls in their pension values during Q1 2020. The devastating impact of the Coronavirus pandemic on global stock markets meant that the average pension fund value fell by 15.2% during Q1 2020, its worst quarterly performance on record, surpassing the falls seen during the global financial crisis of 2008.

Many popular ABI pension fund sectors posted even heavier losses, with UK Smaller Companies (-31%), UK All Companies (-29.8%) and UK Equity Income (-28.4%) pension funds hit the hardest. Testament to the difficulties facing pension funds during Q1 2020 was the fact that only 11% of pension funds avoided losses.

Retirement incomes

At the decumulation phase of retirement, the growing number of individuals entering drawdown will also have been adversely impacted by the fall in value of their underlying pension funds, the biggest reductions that many will have encountered since the introduction of pension freedoms five years ago.

Meanwhile, individuals seeking the security of an annuity face the prospect of annuitising at record-low rates. The average annual standard annuity income for an individual aged 65 (based on a single life £10,000 level without guarantee annuity) fell by 6% in Q1 2020, leaving the average annuity income 1.7% lower than its previous record low in October 2019.

The combination of falling pension fund values and lower annuity rates has had a significant impact on 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 £41,388. Using this to take an income through an annuity at age 65 means that they will now receive just £1,663 per annum, down by 18.7% on the start of the year, and 14.4% lower than the previous all-time low in October 2016.

Richard Eagling, Head of Pensions at Moneyfacts, said:

“Whether it is individuals saving into a pension scheme or currently in drawdown, or retirees looking for the security of an annuity, the Coronavirus pandemic has had a devastating impact on potential retirement outcomes. The hope is that these will prove to be short-term shocks, but for those planning for retirement now and looking for a retirement income immediately, they present unenviable challenges. UK pension policy has increasingly moved towards placing more onus on individuals to take personal ownership of their retirement finances in recent years and take on the risks associated with this, but unfortunately recent events have shown how vulnerable they can be to major world events.”


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Comments

Crispin Duckworth

12:57 PM, 29th April 2020
About 5 months ago

Hi,
Firstly, what is "the average" pension fund?

Anybody saving regularly into a pension - or say an Investment ISA - is buying more with their contributions, whilst markets are down.

Relatively few new annuities are sold these days, existing annuities will continue to pay out at their set, fixed rate.

Thanks.

Ingrid Bacsa

15:35 PM, 29th April 2020
About 5 months ago

Just a thought - with large amounts of care home residents dying due to Corona, a lot of pensions payments will stop. Surely there will be thousands of pounds in surplus within DWP and other pension companies, that they would not otherwise have accrued just yet. Will they invest this surplus in their coffers for the shareholders?

Danny 10

15:39 PM, 29th April 2020
About 5 months ago

These seem huge drops. Not mine, mine has fallen by just over 5%. But it's offshore in Gibraltar, and I am able to invest in funds and areas which aren't under scrutiny or mandated by our Government.
Ironically only yesterday I had an Autocall Structured Note mature, repaying in full plus 94% interest for the five year term. But these investment vehicles aren't available to UK based PPF.

Matarredonda

22:21 PM, 29th April 2020
About 5 months ago

Shares go down as well as up and ways have. Already the FTSE has recovered from when these figures were arrived at.
When you pay regular contributions into either a pension or ISA the lower the market the better it is although, you do of course, need it to be high when you decide to draw it.
I suspect many who have come out of final salary schemes over the last few years will be starting to feel uncomfortable.
Today very few annuities are sold in comparison to even five years ago.
It has always been the case you should spread your investments over a wide range of assets hence why I have two rental properties.
What has happened over the last ten years is nothing short of theft. Government has seen us as a cash cow but before long small scale landlords who generally are the good guys when it comes to looking after tenants will have left the market.
Hey ho happy times!

Danny 10

5:38 AM, 30th April 2020
About 5 months ago

Reply to the comment left by Matarredonda at 29/04/2020 - 22:21
Hi, I have my own thoughts on this, and that is the Government are desperately trying to crush the PRS as we, the landlords are using the property market as our alternative "Pension Fund". Which they can't plunder, or not so easy!!
Then when this has been almost removed there's not much other alternatives than the UK based private pension investments, which they can and do benefit from. Very probably that's why a few years ago they shut the door on the likes of myself, from investing offshore in QROPs.

Matarredonda

8:52 AM, 30th April 2020
About 5 months ago

Reply to the comment left by Danny 10 at 30/04/2020 - 05:38
Yes you are likely correct.
The private landlord bailed successive Governments out after the Thatcher sell off but now they want control of us and how much we make out of it.

Ingrid Bacsa

9:37 AM, 30th April 2020
About 5 months ago

Reply to the comment left by Danny 10 at 30/04/2020 - 05:38
They are trying to crush small landlords for sure . Property was the only way a working class person could accumulate wealth within a short time . Now, we are financially penalised in every way - in favour of rogue tenants who are permitted to abuse property and steal rents, with evictions pushed further and further back no matter what, to keep homeless figures lower. We landlords must also increasingly buy licences to ensure it is we who pay fines for anti social tenants.

Even the proposed "mediation" service is stated by their key person as being a means to "force" Landlords to speak more to tenants. For that, which is just a telephone sedvice, we landlords must pay £540. This will just serve to delay court action, increase arrears and ultimately cost us £540 extra as well making us a laughing stock to rogue tenants as we grovel for much needed rents to enable us to ensure that mega safety and upgrading property standards are met by us.

Mega landlords will not be deterred by all this, but clearly the governments are out to stop the increasing small time landlords in their tracks and gain the confidence of tenants by the million.
What will happen when small landlords no longer exist? The balance will shift away from tenants in favour of the "Lords" who will be ruling them.

Danny 10

7:19 AM, 1st May 2020
About 5 months ago

Reply to the comment left by Ingrid Bacsa at 30/04/2020 - 09:37
Very well thought out and presented Ingrid, but nevertheless frighteningly true. That's my feelings also. I have just 3 properties now, sold one each year since 2017, doubt that will be the case this year.
I had shifted all the proceeds into very well invested and cautiously managed funds, paying me on average 7-8% pa quarterly. My Fin Ad are very very good, most of the funds that remain invested and weren't transferred into gold in February, have only dropped between 5-7% during this fiasco. But growth in the next 2 years will be very very poor if any at all. With over £100k in gold ETF many held since 2013 I m hoping on good returns there.
I m nearly 60 so not too concerned.


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