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Pension warning: Britons may face retirement income shortfall as investment returns fall

Daily Express logo Daily Express 29/11/2021 Mark Oldacres
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Consumers approaching retirement may be disappointed to find that their prospects could be worsening, as the average annuity income fell during the third quarter (Q3) of 2021. Moneyfacts.co.uk has warned consumers to review their pension provisions as they may face an unexpected retirement shortfall.

An annuity is an insurance product that allows people to swap their pension savings for a guaranteed regular income that will last for the rest of their life.

The average annuity reduced by 2.90 percent during Q3 2021, compared to an increase of 0.49 percent a year earlier in Q3 2020.

Rachel Springall, finance expert at Moneyfacts.co.uk, commented on the data and urged Britons to be diligent about the state of their pension pots.

She said: "Saving for a comfortable retirement can seem daunting and the past few months have not been too kind on annuity income.

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pension income annuity rate investment returns uk © GETTY pension income annuity rate investment returns uk

"A third (36 percent) 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."

It is not just annuities which appear to have taken a hit, as pension investment funds have also decreased in their effectiveness in the last year.

Indeed, pension funds during Q3 2021 produced just 0.45 percent returns on average, versus 1.77 percent during Q3 2020.

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Ms Springall said: "The majority of pension fund sectors are still offering positive returns, but there has been a notable shift compared to Q2 2021, when 91 percent of pension funds returned growth compared to 64 percent in Q3 2021.

"The average pension returned less than one percent, at 0.45 percent during Q3 2021 compared to 4.1 percent 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."

what is state pension © Express what is state pension

However, there has also been some more encouraging developments in the arena of pension saving equality, an issue which has long been present and has often meant women having significantly lower retirement savings than men.

According to the Scottish Widows Women & Retirement Report, the same proportion of men and women are now saving enough for a comfortable retirement (61 percent) for the first time on record.

Ms Springall said: "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 needed to make more provisions for their future.

pension income annuity rate investment returns uk © GETTY pension income annuity rate investment returns uk

"A recent study from Scottish Widows revealed the same proportion of men and women are now saving enough for a comfortable retirement (61 percent) 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."

She also offered tips for people looking to address any worries they have over whether their pension pots will be sufficient when they retire.

Ms Springall said: "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."

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