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Pension funds have recovered much of their ground lost during Covid-19 but their progress has hit a bump with the average fund growing less than 2 per cent in Q3, according to latest data.

Data from Moneyfacts, published today, showed the average pension fund recovered just 1.7 per cent during the third quarter of 2020, considerably below the strong growth of 13.3 per cent seen in the previous quarter (Q2 2020).

Due to this, pension funds are on average 2.6 per cent lower than at the start of the year, despite them recovering most of their losses in Q2.

Annuity rates have also increased for the second consecutive quarter, albeit only slightly.

The average annual standard annuity income for an individual aged 65 (based on a single life level without guarantee annuity) increased by between 0.5 per cent and 1.3 per cent in Q3 2020, leaving it up to 4.9 per cent short of its pre-Covid levels.

The equivalent enhanced annuity income made less progress, rising by between 0.4 per cent and 0.6 per cent and leaving it up to 3.2 per cent short.

According to Moneyfacts, the slight upturn in pension fund performance and annuity rates in Q3 2020 led to a 1.7 per cent rise in the retirement incomes for those saving into a personal pension.

An individual with a final pension fund of £46,897 taking out an annuity at age 65 would now receive £1,908 per annum, still 6.8 per cent less than what they would have got at the start of 2020.

Overall, 71 per cent of funds surveyed by Moneyfacts generated positive returns in Q3, down from 95 per cent during Q2 2020.

Steven Cameron, pensions director at Aegon, said: “A diversified approach should have helped many pension funds avoid the worst of equity market volatility, and members approaching retirement within lifestyle funds targeting annuities may have a significant proportion of their investments in gilts.

“For those many years off retiring, a focus on returns in 2020 is less helpful than considering longer-term prospects.

“As we all know, contributions paid in when markets are low have a greater chance of growing faster during periods of recovery.”