Consumers preparing to retire may feel they have to delay their plans due to the influence of the Coronavirus pandemic. The latest analysis from Moneyfacts.co.uk reveals that, despite pension fund growth in 2020, it may well have fallen short of retirees’ expectations and at the same time, annual annuity income continues to fall.
- Average annual annuity income was -6.3% in 2020, a third consecutive year of a falls.
- Pension fund growth hit 4.9% in 2020, down from 14.4% in 2019.
- HMRC data shows consumers drew £2.3 billion out of their pots under pension freedoms during Q3 2020, a rise from Q2 and may well be attributed to the impact of the Coronavirus pandemic.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “Despite the economic and political turmoil of 2019, pension fund growth was the most promising it had been since 2016, however, the scene has not been so rosy for growth over the past year and no one could have predicted the devastating impact the Coronavirus pandemic would have on consumers’ everyday finances, plausibly affecting their future retirement plans. Thankfully, there has been performance growth of 4.9% over 2020 despite a notably volatile stock market, so regardless, it’s good to see some form of growth but it is less than that of the 14.4% growth seen a year prior.
“Those consumers who are approaching retirement may find they have a shortfall due to market turmoil and that their cash savings are earning little interest with rates falling to all-time lows. Indeed, in light of the Coronavirus pandemic, some consumers may have made the decision to dip into their pot using pension freedoms or plan to do so soon. Billions of pounds were taken out of pensions during Q3 2020 according to HMRC and this money could have been drawn for more immediate financial issues or even to help a family member during challenging times. Some consumers may also consider equity release to fill the retirement gap, however, it’s always wise to seek advice before committing to any arrangement.
“Retirees considering an annuity would be disappointed to see another fall in the average annual income for the third year in a row, so it would be understandable for them to favour pension drawdown instead. Indeed, since pension freedoms were introduced in 2015, annuity income has fallen for five out of the six years. Growth has not been seen across the market for a one full year since 2017, which was just 1%.
“Clearly it would be wise for consumers to seek independent financial advice when it comes to their retirement plans and keep up with regular reviews of their investments and options. A workplace pension may not be sufficient to meet someone’s retirement goals and if unchecked too late, it could delay their retirement plans or force them to seek other ways to plug the gap.”