Retirees looking for the security of an annuity will be disappointed to see that the average annuity income fell by 6% in the first three months of 2020, its lowest level on record.
Data due to be published in the Moneyfacts UK Personal Pension Trends Treasury Report shows that between January to March 2020, the average annual standard annuity income for an individual aged 65 (based on a single life £10,000 level without guarantee annuity) was 1.7% lower than the previous lowest level recorded in October 2019.
In addition to this, those saving for retirement will also have seen their pension funds severely hit during the first three months of 2020. The impact of the Coronavirus pandemic on the global stocks markets has resulted in the average pension fund value falling by 15.2% during this period, its worst quarterly performance on record.
There was more bad news for retirement savers as 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. In fact, just 11% of pension funds avoided losses during the first three months of 2020.
The combination of lower annuity rates and falling pension funds has had a significant impact on the retirement incomes available to those saving into a private pension and looking to take out an annuity. 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.
Commenting on the fall in annuity income and pension funds, 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.”
— to moneyfacts.co.uk