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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension fund returns up in first quarter

Pension fund returns performed strongly in the first quarter of this year but annuity rates declined, research by Moneyfacts UK has found.

Retirement savers were given mixed fortunes ©iStock

Moneyfacts’ Personal Pension Trends Treasury Report said pension funds endured a marked downturn in the fourth quarter of 2018, when the average fund fell by 7.3% but made a good start to 2019 when the average pension fund recovered much of last year’s lost ground by generating returns of 6.7% – their strongest quarterly performance since September 2016.

It said all Association of British Insurers (ABI) pension fund sectors surveyed produced gains, as did 95% of the 5,528 pension funds. 

The top three ABI pension fund sectors were North America equities (10.9%), UK property securities (10.4%) and global property (10.2%).

By contrast, average annual income from annuities fell in the first quarter.

Moneyfacts said that since the introduction of pension freedoms in April 2015 pricing trends have generally been more favourable for larger annuity purchase prices, but in this quarter this did not happen.

At the higher purchase price of £50,000, the average annual standard level without guarantee annuity income fell by 1.8%, putting the average annual standard annuity income at its lowest level since October 2017 and down by 4.3% since the introduction of pension freedoms.

Richard Eagling, Moneyfacts head of pensions, 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.”

Moneyfacts also found a 3.9% increase during the first quarter of 2019, from £2,054 to £2,135 in 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. This followed two consecutive quarters of decreases.

Mr Eagling said: “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.”

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