Lower pension returns and higher withdrawals raising drawdown risks

The findings show that while pension fund performance remains significant, not only in delivering larger pension pots, but also in helping to ensure drawdown strategies remain sustainable.

In 2016 and 2017, this was less of a concern as the average pension fund delivered double-digit growth of 15.7 per cent and 10.5 per cent respectively.

However, the analysis shows pension fund returns have been subject to increased volatility in 2018.

The average pension fund fell by 3.8 per cent during Q1 2018 before rising by 4.4 per cent in Q2 2018. Pension fund returns proved more subdued in Q3 2018, rising by just 0.9 per cent, with almost 40 per cent of funds failing to deliver any growth at all.

By the end of Q3 2018, the average pension fund was up by only 1.2 per cent this calendar year. But pension funds have made a poor start to Q4 2018, falling by 4.1 per cent. This trend puts average pension fund returns on course for a fall of 2.9 per cent in 2018, its first year of losses since 2011.

The drop-off in pension fund performance comes at a time when the latest Financial Conduct Authority data shows that for drawdown policies where a regular withdrawal is being made, the withdrawal rate has increased from 4.7 per cent in 2016/17 to 5.9 per cent in 2017/18, a level that raises questions of sustainability over the long-term.