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Pension funds and annuity income returns growth

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Rachel Springall, Press Officer
Rachel Springall, Press Officer / Finance Expert T: 01603 476210 E: Email Rachel
18/01/2022

Pension funds and annuity income returns growth

Consumers who have plans to retire this year will find both pension funds and annuity income rose during 2021 on average. The latest analysis from Moneyfacts.co.uk, reveals both returns were positive in 2021, with pension funds returning the best average growth since 2019.

 

  • Pension fund growth hit 9.5% in 2021, up from 4.9% in 2020.
  • Average annual annuity income was 3.9% in 2021, a positive change from the falls of the three previous years.
  • HMRC data shows consumers drew £2.6 billion out of their pots under pension freedoms during Q1 2021, a rise year-on-year. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion.

Pension funds and annuity income returns growth

Consumers who have plans to retire this year will find both pension funds and annuity income rose during 2021 on average. The latest analysis from Moneyfacts.co.uk, reveals both returns were positive in 2021, with pension funds returning the best average growth since 2019.

 

  • Pension fund growth hit 9.5% in 2021, up from 4.9% in 2020.
  • Average annual annuity income was 3.9% in 2021, a positive change from the falls of the three previous years.
  • HMRC data shows consumers drew £2.6 billion out of their pots under pension freedoms during Q1 2021, a rise year-on-year. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion.

 

Average annual pension fund returns, and average annual annuity income change since the introduction of pension freedoms

Calendar year

% pension fund growth

% annual annuity income change

2021

9.5%

3.9%

2020

4.9%

-6.3%

2019

14.4%

-8.5%

2018

-6.2%

-0.2%

2017

10.5%

1.0%

2016

15.7%

-5.3%

2015

2.6%

-3.1%

Annuity figures based on an annuitant aged 65 buying a single life level without guarantee annuity for a £10,000 purchase price. Source: Moneyfacts.co.uk and Lipper

 

Average annual pension fund returns, and average annual annuity income change since the introduction of pension freedoms

Calendar year

% pension fund growth

% annual annuity income change

2021

9.5%

3.9%

2020

4.9%

-6.3%

2019

14.4%

-8.5%

2018

-6.2%

-0.2%

2017

10.5%

1.0%

2016

15.7%

-5.3%

2015

2.6%

-3.1%

Annuity figures based on an annuitant aged 65 buying a single life level without guarantee annuity for a £10,000 purchase price. Source: Moneyfacts.co.uk and Lipper

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Retirees concerned about their retirement pot may breathe a sigh of relief to see both the average pension fund and annuity growth was positive in 2021. The volatility of pension funds in 2020 was evident, with a fall from a positive return of 14.4% in 2019 down to 4.9%. Consumers will now see 2021 returned a positive 9.5% average growth, although this will vary by individual fund. This is an encouraging sign that those looking to retire this year may have more in their pension pot to either take out an annuity or opt for drawdown. If they decide to annuitise all or part of their pension they will also find annuity income is up from last year too, providing them with a welcome income boost compared with those who retired in 2020.

“The impact the Coronavirus pandemic has had on consumers’ financial resilience is obvious, and this year the cost of living is expected to rise. Those intending to retire must ensure it is the right time and that they are prepared as much as possible for an increase in household expenses. Anyone planning to supplement their pension with interest from cash savings will have seen interest rates fall to record lows in 2021, with the market only slowly showing signs of stabilisation. Pension savers planning ahead for their retirement, but facing a potential income shortfall, could consider putting more into their pension or even open a Lifetime ISA for a Government 25% boost on their savings, but whichever they choose it’s wise to look at retirement projections sooner than later.

“Retirees who have little alternative than to take money out of their pension pot this year would be wise to seek advice before they do so. Dipping into pension pots was evident during the pandemic, under pension freedoms rules. According to HMRC, billions of pounds were taken out of pensions during Q1 2021 and so far, the total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion. Withdrawals may also have been made not just to fund a retirement gap, but perhaps given to family as early inheritance.

“An alternative to a pension pot dip could be to use a home to plug the retirement shortfall or help support family members, through equity release. The decision to release equity from a home requires careful thought, and a conversation with family members is wise so that all are aware of its impact on inheritance. However, a recent study by HUB Financial Solutions highlights that while the majority who plan to seek advice discuss this with their family, only 7% go on to involve them in meetings with a financial adviser. Those facing a shortfall in retirement would be wise to consider all their options carefully with an independent adviser and be very open with family on any impact it may have to ensure it’s the right choice.”

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Retirees concerned about their retirement pot may breathe a sigh of relief to see both the average pension fund and annuity growth was positive in 2021. The volatility of pension funds in 2020 was evident, with a fall from a positive return of 14.4% in 2019 down to 4.9%. Consumers will now see 2021 returned a positive 9.5% average growth, although this will vary by individual fund. This is an encouraging sign that those looking to retire this year may have more in their pension pot to either take out an annuity or opt for drawdown. If they decide to annuitise all or part of their pension they will also find annuity income is up from last year too, providing them with a welcome income boost compared with those who retired in 2020.

“The impact the Coronavirus pandemic has had on consumers’ financial resilience is obvious, and this year the cost of living is expected to rise. Those intending to retire must ensure it is the right time and that they are prepared as much as possible for an increase in household expenses. Anyone planning to supplement their pension with interest from cash savings will have seen interest rates fall to record lows in 2021, with the market only slowly showing signs of stabilisation. Pension savers planning ahead for their retirement, but facing a potential income shortfall, could consider putting more into their pension or even open a Lifetime ISA for a Government 25% boost on their savings, but whichever they choose it’s wise to look at retirement projections sooner than later.

“Retirees who have little alternative than to take money out of their pension pot this year would be wise to seek advice before they do so. Dipping into pension pots was evident during the pandemic, under pension freedoms rules. According to HMRC, billions of pounds were taken out of pensions during Q1 2021 and so far, the total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion. Withdrawals may also have been made not just to fund a retirement gap, but perhaps given to family as early inheritance.

“An alternative to a pension pot dip could be to use a home to plug the retirement shortfall or help support family members, through equity release. The decision to release equity from a home requires careful thought, and a conversation with family members is wise so that all are aware of its impact on inheritance. However, a recent study by HUB Financial Solutions highlights that while the majority who plan to seek advice discuss this with their family, only 7% go on to involve them in meetings with a financial adviser. Those facing a shortfall in retirement would be wise to consider all their options carefully with an independent adviser and be very open with family on any impact it may have to ensure it’s the right choice.”

Notes to editors

Pioneering financial comparison technology for over 30 years.

Moneyfacts Group plc is the UK’s leading provider of retail financial product data. Used by virtually every bank and building society in the UK, and supplied to the Bank of England, Financial Conduct Authority, Financial Ombudsman Service, HM Treasury, Prudential Regulatory Authority and UK Finance.

Our expert research team monitors the thousands of mortgages, savings, credit card, personal loan, business banking, life, pension and investment products in the UK.

Moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, Moneyfacts.co.uk shows whole of market data regardless of commercial bias, showing consumers a true picture of the best products based on the criteria they select.

We hope you find this press release insightful. We would appreciate a link back to Moneyfacts.co.uk if you decide to source this information.

For more information about us please see our key facts.

Broadcast

Our broadcast suite enables our finance experts to appear in-vision for television, and we regularly comment live on national and regional radio.

To arrange an interview for radio or television, please contact our press department. We have an in-house broadcast room.

 

Notes to editors

Pioneering financial comparison technology for over 30 years.

Moneyfacts Group plc is the UK’s leading provider of retail financial product data. Used by virtually every bank and building society in the UK, and supplied to the Bank of England, Financial Conduct Authority, Financial Ombudsman Service, HM Treasury, Prudential Regulatory Authority and UK Finance.

Our expert research team monitors the thousands of mortgages, savings, credit card, personal loan, business banking, life, pension and investment products in the UK.

Moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, Moneyfacts.co.uk shows whole of market data regardless of commercial bias, showing consumers a true picture of the best products based on the criteria they select.

We hope you find this press release insightful. We would appreciate a link back to Moneyfacts.co.uk if you decide to source this information.

For more information about us please see our key facts.

Broadcast

Our broadcast suite enables our finance experts to appear in-vision for television, and we regularly comment live on national and regional radio.

To arrange an interview for radio or television, please contact our press department. We have an in-house broadcast room.

 

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Rachel Springall Press Officer / Finance Expert
Eleanor Williams Press Officer / Finance Expert