Annuity rates fell in Q2 2017 following two consecutive quarters of growth, Moneyfacts has reported.

According to the Moneyfacts UK Personal Pension Trend Treasury Report, annuity sales were subdued in comparison to pre-pension freedom levels. However, with around 80,000 annuities sold each year, this remains a significant market, as a result it comes as a surprise that rates fell in Q2 after two strong quarters, the report said.

Moreover, the percentage of pension funds that did not produce any growth grew from five per cent in Q1 2017 to 29 per cent in Q2 2017. Despite this, the report explained that at the halfway point in the year, the average pension fund had grown by 5.6 per cent, suggesting that 2017 is on track to be the sixth consecutive year of positive returns.

The standard annuity market also declined in the quarter, with the average income payable from a level without guarantee annuity for a 65-year-old decreased by 2.1 per cent at the £10,000 purchase point and 1.7 per cent at the £50,000 purchase point, back to the levels at which 2017 begun. Nonetheless, the average annuity income is 3.1 per cent higher than the same time last year where rates fell significantly as a result of falling gilts following the EU referendum.

Over the second quarter, the spread in providers’ open annuity rates grew from 12 per cent to 13.9 per cent, only slightly down from pre-pension freedoms, the report noted.

This is in comparison to the enhanced annuity market; with only four providers in the open market, annual income from an enhanced annuity fell by between 0.8 per cent 1.2 per cent in Q2 2017. While this is less than average standard annuity rate falls, enhanced annuity income remains 1.4 per cent lower than a year ago.

The report also found that investments in the accumulation phase of retirement dropped, with the average pension fund posting weaker growth of four per cent in Q1 2017 to 1.4 per cent in Q2.

Moneyfacts head of pensions Richard Eagling said: “The FCA’s recent Retirement Outcomes Review Interim Report has brought pension freedoms and retirement income back under the spotlight. However, while pension rules and regulation provide the framework for securing good retirement income outcomes, the economic environment will be the deciding factor.

“The second quarter of 2017 proved to be more difficult for pension fund performance, while annuity rates fell after two consecutive quarters of growth. The Government’s decision to bring forward by seven years the rise of the state pension age to 68 will put more pressure on private pension provision at a time when the economic landscape remains challenging for those looking to generate and secure a comfortable retirement income.”

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