HM Revenue & Customs (HMRC) statistics show personal pension contributions in 2015 to 2016 surpassed their 2007 to 2008 peak, while personal pension membership is also at a record high.
However, the latest Moneyfacts UK Personal Pension Trends Treasury report found that today’s retirees are still receiving significantly less retirement income than similar individuals who retired at the height of the financial crisis in October 2008.
The average retirement income, based on a male contributing £100 per month into a pension over 20 years and retiring at 65 without a guarantee annuity, is at £2,202 in the third quarter of 2017.
This is 27 per cent less than the equivalent retirement income of £3,004 in October 2008 at the height of the financial crisis, the research showed.
According to Richard Eagling, head of pensions at Moneyfacts, the record high of £24.3bn saved into personal pensions registered by HMRC masked two major concerns: low individual pension contributions and subdued retirement incomes.
He said: “With the retirement incomes being delivered by personal pensions and annuities significantly below the 2008 financial crisis levels, there is an urgent need for greater education and engagement to encourage individuals to make greater private pension provision.”
Contributing to these figures is pension fund growth, which continued to slow during the third quarter, with the average pension fund delivering returns of just 0.9 per cent.
This compares with average growth of 4 per cent in the first quarter of 2017 and 1.4 per cent in the second quarter of 2017.
Moneyfacts report also showed that uncertainty surrounding the annuity market and volatile gilt yields are impacting annuity rates.
Annuity pricing trends in the third quarter of 2017 proved to be far from homogeneous, with some wide variations in pricing strategies depending upon the type of annuity and options chosen, and the purchase price, the report said.
Overall, across all annuity types (standard and enhanced) the average annual annuity income based on a 65-year-old purchasing this product fell by 0.2 per cent at the £10,000 purchase price, but increased by 1 per cent at the higher £50,000 purchase price.
According to Mr Eagling, the question of whether an adequate annuity market is being sustained is being addressed by the Work and Pensions select committee, as part of an inquiry on the impact of the pension freedoms that were introduced in 2015.
He said: "It is still too early to say whether competition in the annuity market is now inadequate, but there are signs that it has weakened to such an extent that providers are reluctant to price themselves too far ahead of their rivals."
In the third quarter of 2017, the difference in the income payable between the most competitive and least competitive open market annuity narrowed markedly, from 13.9 per cent to just 8 per cent.
He said: "This is the lowest level that we have ever recorded, surpassing the previous low of 8.3 per cent at the time of the switch to gender neutral pricing in December 2012, which forced annuity providers to adopt ultra-cautious pricing."
According to William Burrows, retirement director at Better Retirement, “care must always be taken when comparing different periods of time”.
He said: "The relationship between equity returns and annuity rates is the key to understanding what is happening to retirement income."
Mr Burrows argued that “anyone wanting to maximise their retirement income must keep an eye on the stock market and an eye on annuities”.
He said: "There is nothing wrong with the annuity concept as it is still the only policy to guarantee income for life.
"The problem is low interest rates but hopefully rates will nudge upwards slowly but surely."
maria.espadinha@ft.com
