People still considering annuities or a hybrid annuity/drawdown model for retirement could end up with even less income post-pandemic, research from Moneyfacts has shown.
Amid growing concerns that people have put their retirement plans on ice or delayed retiring as a result of the pandemic, data from Moneyfacts shows that for people seeking a certain quantifiable level of income in retirement, the traditional annuity route is not working.
Despite a small rise of £86 year-on-year from the average annuity income since May 2020 - from £2,271 last May to £2,357 this May - the total average income from an annuity has fallen from £2,516 pre-pandemic.
This means annuitants today stand to receive £159 less a year than they would have done in 2019; even then, rates had reached their lowest level since 2017, as reported by FTAdviser at the time.
Rachel Springall, finance expert at Moneyfacts, said: "Building a comfortable retirement pot may feel out of reach for some, particularly when interest rates sit at record lows and inflation is predicted to rise, leading to an erosion of the true spending power of retirees’ savings pots that supplement their pension provisions.
"Annuity income has failed to return to levels seen before the pandemic, which means consumers considering this option will be getting less yearly income than they may have expected."
The chart below shows annuity income in the years from 2019 to 2021, based on an annuitant age 65 buying a single-life level without guarantee annuity, for £50,000.
According to Moneyfacts, this is just another blow for pensioners, many of whom have been dipping into their pension pots during the first quarter of the year.
Data from HM Revenue & Customs revealed £2.6bn was withdrawn in Q1 alone - a 6 per cent rise on Q1 in 2020 before the UK went into lockdown.
Springall added: "Retirees may well be facing a pensions shortfall and their savings are not working as hard as they could. Pensioners may then consider other ways to boost their disposable income, such as with an equity release plan – of which there are now more than 500 deals available to navigate.
“Those consumers with many years ahead of them until retirement may decide to reduce their pension contributions in light of the pandemic but would perhaps revisit this move as the UK eases out of lockdown, as it is hoped their situation can improve."
She highlighted research from March 2021 from PensionBee, which found 67 per cent of those aged 18-23 would delay their retirement by two years, on average.
Some 35 per cent of 41-54 year olds said they planned to delay it by 16 months.
Writing for FTAdviser, Romi Savova, chief executive of PensionBee, said: "Seeing young people engage with their pensions and start saving from an early age is extremely encouraging.
"Due to the nature of compound interest, a small savings pot now can turn into a significant amount when left untouched for a long period of time, preventing future disappointment."