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Pension shortfall warning as annuity income falls

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Rachel Springall, Press Officer
Rachel Springall, Press Officer / Finance Expert T: 01603 476210 E: Email Rachel
29/11/2021

Pension shortfall warning as annuity income falls

Consumers approaching retirement may be disappointed to find that during Q3 2021 the average annuity income fell. According to latest analysis by Moneyfacts.co.uk, consumers have been warned to review their provisions as they may face an unexpected retirement shortfall.

  • The average annuity reduced by 2.90% during Q3 2021, versus 0.49% in Q3 2020.
  • Pension funds during Q3 2021 returned 0.45% on average, versus 1.77% during Q3 2020.
  • The top three performing Association of British Insurers (ABI) pension sectors during Q3 2021 were: Japan Equities (5.66%), UK Smaller Companies (3.52%), UK Index-Linked Gilts (3.03%).
  • According to the Scottish Widows Women & Retirement Report, the same proportion of men and women are now saving enough for a comfortable retirement (61%) for the first time on record.

Pension shortfall warning as annuity income falls

Consumers approaching retirement may be disappointed to find that during Q3 2021 the average annuity income fell. According to latest analysis by Moneyfacts.co.uk, consumers have been warned to review their provisions as they may face an unexpected retirement shortfall.

  • The average annuity reduced by 2.90% during Q3 2021, versus 0.49% in Q3 2020.
  • Pension funds during Q3 2021 returned 0.45% on average, versus 1.77% during Q3 2020.
  • The top three performing Association of British Insurers (ABI) pension sectors during Q3 2021 were: Japan Equities (5.66%), UK Smaller Companies (3.52%), UK Index-Linked Gilts (3.03%).
  • According to the Scottish Widows Women & Retirement Report, the same proportion of men and women are now saving enough for a comfortable retirement (61%) for the first time on record.
 

Q3 2020
(1 July to 1 October)

Q3 2021
(1 July to 1 October)

Average pension fund

1.77%

0.45%

Pension funds positive returns

64%

64%

Average annual annuity income (standard annuity age 65 no guarantee)

0.49%

-2.90%

Personal pension for 20 years (£100 pm gross saved, average pension fund)

£46,914

£53,157

Using pension pot to take an income through an annuity

£1,909 per annum

£2,200 per annum

Average retirement income compared to one year ago

-4.19%

15.24%

Top three Association of British Insurers (ABI) pension sectors

Asia Specific inc Japan Eq (5.69%), Asia Specific exc Japan Eq (5.37%), North America Equities (5.02%)

Japan Equities (5.66%), UK Smaller Companies (3.52%), UK Index-Linked Gilts (3.03%)

Source: Lipper / Moneyfacts.co.uk

 

Q3 2020
(1 July to 1 October)

Q3 2021
(1 July to 1 October)

Average pension fund

1.77%

0.45%

Pension funds positive returns

64%

64%

Average annual annuity income (standard annuity age 65 no guarantee)

0.49%

-2.90%

Personal pension for 20 years (£100 pm gross saved, average pension fund)

£46,914

£53,157

Using pension pot to take an income through an annuity

£1,909 per annum

£2,200 per annum

Average retirement income compared to one year ago

-4.19%

15.24%

Top three Association of British Insurers (ABI) pension sectors

Asia Specific inc Japan Eq (5.69%), Asia Specific exc Japan Eq (5.37%), North America Equities (5.02%)

Japan Equities (5.66%), UK Smaller Companies (3.52%), UK Index-Linked Gilts (3.03%)

Source: Lipper / Moneyfacts.co.uk

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

“Saving for a comfortable retirement can seem daunting and the past few months have not been too kind on annuity income. A third (36%) of pension funds fell during Q3 2021, which is why consumers would be wise to keep a close eye on where they have their money invested. Those who saved £100 gross per month for 20 years into a personal pension would have built a pot of £53,157 on average, and taking a standard annuity at age 65 would result in a yearly income of £2,200.

“The majority of pension fund sectors are still offering positive returns, but there has been a notable shift compared to Q2 2021, when 91% of pension funds returned growth compared to 64% in Q3 2021. The average pension returned less than 1%, at 0.45% during Q3 2021 compared to 4.1% during Q2 2021. Compared to the equivalent quarter a year ago (Q3), fund returns have worsened slightly in 2021, but it is worth remembering that 2020 overall was hit hard by the impact of the Coronavirus pandemic. The volatility to fund sectors makes it ever-more prudent for consumers to monitor where their cash is invested, but it is also important that they seek advice to ensure they don’t switch their funds in haste.

“In positive news, recent research has revealed some consumers have taken steps to save more for their retirement. A change of mindset could well have developed for these consumers if they were impacted financially by the pandemic and felt they need to make more provisions for their future. A recent study from Scottish Widows revealed the same proportion of men and women are now saving enough for a comfortable retirement (61%) for the first time on record. This is a huge step in the right direction, and hopefully this momentum continues for the foreseeable future and isn’t just a temporary change.

“Consumers concerned with a pensions shortfall in retirement may be wise to consider alternative ways to boost their income, perhaps with rental income from investing in property through buy-to-let or releasing equity out of their home by equity release. However, both areas require careful consideration and getting independent advice before committing to any arrangement is wise.”

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

“Saving for a comfortable retirement can seem daunting and the past few months have not been too kind on annuity income. A third (36%) of pension funds fell during Q3 2021, which is why consumers would be wise to keep a close eye on where they have their money invested. Those who saved £100 gross per month for 20 years into a personal pension would have built a pot of £53,157 on average, and taking a standard annuity at age 65 would result in a yearly income of £2,200.

“The majority of pension fund sectors are still offering positive returns, but there has been a notable shift compared to Q2 2021, when 91% of pension funds returned growth compared to 64% in Q3 2021. The average pension returned less than 1%, at 0.45% during Q3 2021 compared to 4.1% during Q2 2021. Compared to the equivalent quarter a year ago (Q3), fund returns have worsened slightly in 2021, but it is worth remembering that 2020 overall was hit hard by the impact of the Coronavirus pandemic. The volatility to fund sectors makes it ever-more prudent for consumers to monitor where their cash is invested, but it is also important that they seek advice to ensure they don’t switch their funds in haste.

“In positive news, recent research has revealed some consumers have taken steps to save more for their retirement. A change of mindset could well have developed for these consumers if they were impacted financially by the pandemic and felt they need to make more provisions for their future. A recent study from Scottish Widows revealed the same proportion of men and women are now saving enough for a comfortable retirement (61%) for the first time on record. This is a huge step in the right direction, and hopefully this momentum continues for the foreseeable future and isn’t just a temporary change.

“Consumers concerned with a pensions shortfall in retirement may be wise to consider alternative ways to boost their income, perhaps with rental income from investing in property through buy-to-let or releasing equity out of their home by equity release. However, both areas require careful consideration and getting independent advice before committing to any arrangement is wise.”

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.

 

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.

 

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