Retirement incomes are still 27 per cent lower than in the 2008 financial crisis, according to research by Moneyfacts.

This is despite the total amount being saved into personal pensions surpassing the pre-financial crisis high; new 2015/16 estimates from HMRC show personal pension contributions have surpassed their 2007/08 peak. Personal pension membership is also at a record high.

The average retirement income based on a male contributing £100 per month into the average pension fund over a 20-year period and retiring at the age of 65 with a standard level without guarantee annuity fell for the second consecutive quarter, from £2,229 in Q2 2017 to £2,202 in Q3 2017. This is 27 per cent lower than the equivalent retirement income of £3,004 in October 2008 at the height of the financial crisis.

Commenting,Moneyfacts head of pensions Richard Eagling said: “Although some of the headline figures recently released by HMRC paint a picture of a reinvigorated personal pension market, they mask two major concerns: low individual pension contributions and subdued retirement incomes. 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.

“One of the biggest problems that individuals still face is understanding what is needed to deliver a good retirement income outcome, especially given the lack of official guidance. To this end, the Pensions and Lifetime Savings Association’s recent proposal to create a set of Retirement Income Targets, similar to those being employed to good effect in Australia, seems to offer a sound rationale.”

The Moneyfacts report found that pension fund growth continued to slow during Q3 2017, with the average pension fund delivering returns of just 0.9 per cent. This compares with average growth of 4 per cent in Q1 2017 and 1.4 per cent in Q2 2017. Returns for Q3 2017 would have been higher but for a difficult September 2017, in which the average pension fund fell by 1.5 per cent. Highlighting the more challenging economic conditions faced by pension funds is the fact that a third of the surveyed funds (33 per cent) failed to deliver growth in Q3 2017, up from 29 per cent in Q2 2017.

The report also revealed how the uncertainty that still surrounds the annuity market and volatile gilt yields are impacting annuity rates. Annuity pricing trends in Q3 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.

Overall, across all annuity types (standard and enhanced) the average annual annuity income based on a 65-year-old fell by 0.2 per cent at the £10K purchase price but increased by 1% at the higher £50K purchase price.

Eagling added: “One of the key questions that the Work and Pensions Committee is seeking to address in its recently announced pension freedoms inquiry is whether an adequate annuity market is being sustained. 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 Q3 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. 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.”

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