New data from the latest Moneyfacts UK Personal Pension Trends Treasury Report has revealed mixed fortunes for the retirement sector during Q1 2019, with pension fund returns performing strongly but annuity rates declining.
Pension fund recovery
Pension funds endured a marked downturn in Q4 2018, with the average pension fund falling by 7.3%. As a result, in 2018 pension funds suffered their biggest losses since the 2008 financial crisis. However, performance-wise, pension funds have made a bright start to 2019. In Q1 2019, the average pension fund recovered much of last year’s lost ground by generating returns of 6.7%, the strongest quarterly pension fund performance since Q3 2016.
The generally more favourable market conditions for pension funds is reflected in the fact that all the ABI pension fund sectors and 95% of the 5,528 pension funds surveyed produced gains. Property funds fared particularly well in Q1 2019, with the top three ABI pension fund sectors consisting of: North America Equities (10.9%), UK Property Securities (10.4%) and Global Property (10.2%).
Average quarterly pension fund growth and average quarterly annuity income change
| Calendar year | Average pension fund growth | Average annuity income change |
| Q1 2019 | 6.7% | -1.4% |
| Q4 2018 | -7.3% | -0.6% |
| Q3 2018 | 0.9% | -1.0% |
| Q2 2018 | 4.4% | 0.6% |
| Q1 2018 | -3.8% | 0.8% |
| Q4 2017 | 3.5% | 1.9% |
| Q3 2017 | 0.9% | -1.0% |
| Q2 2017 | 1.4% | -2.1% |
| Q1 2017 | 4.0% | 2.3% |
| Q4 2016 | 2.1% | 9.9% |
| Q3 2016 | 6.8% | -6.4% |
Source: Moneyfacts UK Personal Pension Trends Treasury reports/Lipper
Annuity incomes slide
By contrast to pension fund returns, average annual income for those seeking the security of an annuity fell in Q1 2019. In the first three months of the year, the average annual standard level without guarantee annuity income for a 65-year old with a £10,000 pension pot decreased by 1.4%.
Since pension freedoms were introduced, it has been noticeable that pricing trends have generally been more favourable for larger annuity purchase prices, but in Q1 2019 this was not the case. At the higher purchase price of £50,000, the average annual standard level without guarantee annuity income fell by 1.8%.
This latest fall means that the average annual standard annuity income is at its lowest level since October 2017 and is down by 4.3% since the introduction of pension freedoms in April 2015.
Richard Eagling, head of pensions at Moneyfacts said, “While 2018 was a difficult year for pension fund performance and drawdown investors, it was a relatively calm year for annuities. However, the respective fortunes of the different areas of the retirement market can quickly change, as seen in Q1 2019, with annuity rates once again falling.”
Subdued retirement incomes
After falling for two consecutive quarters, the average retirement income for an individual contributing £100 gross per month into the average pension fund over a 20-year period and retiring at age 65 with a standard level without guarantee annuity increased by 3.9% during Q1 2019, from £2,054 to £2,135. This improvement has primarily been driven by stronger pension fund returns, which offset the reductions in annuity income.
Eagling added, “Despite this latest increase, average retirement incomes remain lower than a decade ago, reinforcing the need to improve consumer engagement with pensions and highlighting why the Government is keen to introduce new legislation to facilitate alternatives to the traditional choice between defined contribution and defined benefit pension schemes.”
The Moneyfacts UK Personal Pension Trends Treasury Report provides a comprehensive review of the UK personal pension and annuity sectors, with detailed analysis of annuity rates, pension fund returns and maturity values.
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