Could pensions be taking a heavier toll from Coronavirus than property investment?Make Text Bigger
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.
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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