UK pension funds endured faltering returns in the third quarter of this year, despite recording their strongest quarterly performance in a decade over the previous three months.
That is according to the latest Moneyfacts UK Personal Pension Trends Treasury Report, which shows that pension funds saw returns of just 1.7% between July and September, down from 13.3% in the previous quarter.
This means that pension funds are still, on average, 2.6% lower than at the start of the year, before the COVID-19 crisis devastated global stock markets.
The more testing market conditions are reflected in the fact that 71% of all funds generated positive returns in the third quarter, down from 95% during the previous quarter.
“The performance of pension funds weakened noticeably during Q3 2020, meaning that pension returns remain in negative territory for 2020,” said Richard Eagling, head of pensions at Moneyfacts.
“Once again, these figures highlight the challenges that individuals face in being able to fund a comfortable retirement.”
The report also shows that annuity rates increased slightly for the second consecutive quarter, with average annual standard annuity income for an individual aged 65 increasing by between 0.5% and 1.3%, depending upon the purchase price.
However, the equivalent enhanced annuity income made less progress, rising by between 0.4% and 0.6%.
Despite these latest increases, the average annual standard annuity income is up to 4.9% lower than at the start of the year, while the average enhanced annuity income is up to 3.2% lower.
Eagling said that the performance of pension funds will raise concerns about the sustainability of retirement incomes, given that recent data has shown that the proportion of drawdown investors that are making regular withdrawals at an annual rate of 8% or more increased from 40% in 2018/19 to 42% in 2019/20.
He added: "There will be plenty of individuals that will need to adjust their retirement planning to take account of this year’s poor pension fund performance.”
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Author: Chris Seekings