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The upcoming Moneyfacts UK Personal Pension Trends Treasury Report has revealed that most pension and drawdown funds have seen yet another year of positive performance, resulting in 2017 becoming the sixth consecutive year to see overall fund growth.
Specifically, pension fund performance in 2017 finished up by 10.5%. While this is a small decrease from the 15.7% recorded in 2016, it is a much larger growth than seen in both 2015 and 2014, as illustrated in the table below.
|Calendar year||Pension fund growth|
Further figures reveal that of all the pension funds surveyed, 95% delivered positive growth last year. In terms of the best-performing ABI pension fund sectors, UK Smaller Companies (+28.1%), Asia Pacific excluding Japan (+24.4%) and Global Emerging Markets (+23.2%) led the way.
Richard Eagling, Head of Pensions and Investments at Moneyfacts, commented: "The latest strong pension fund performance will be welcome news not only to those saving into a defined contribution pension scheme, but also to the growing number of retirees who remain invested in pension funds through income drawdown.
"However, it is important that pension savers and drawdown investors are not lulled into a false sense of security and are prepared for market falls. The fact that the average pension fund has now delivered positive returns in every calendar year since 2012 has arguably made it easier for individuals to accept the investment risks inherent in the DC [defined contribution] pension model than might otherwise have been the case."
The report goes on to highlight that the two most important initiatives currently shaping private pension provision, namely auto-enrolment and pension freedoms, may have been able to get more traction because they've benefitted from positive pension fund returns since their introduction.
Indeed, since auto-enrolment was introduced in 2012 the average pension fund has delivered growth of 65%, while it has risen by 24% since pension freedoms began in 2015. However, Richard concludes that, while we've recently seen huge enthusiasm for both private pensions and auto-enrolment – highlighted by low opt-out rates – whether or not this enthusiasm continues should we see a sustained period of falling investment returns, rather than strong growth, remains to be seen.
If you're nearing retirement, you may be tempted by income drawdown, as your pension funds would continue benefitting from a positive market. However, don't underestimate the security that an annuity can bring, especially if pension fund performance falls in future.
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