Figures for the first three months of 2018 see an unwelcome deterioration in pension fund performance, according to the latest Moneyfacts UK Personal Pension Trends Treasury Report. This ends a run of nine quarters wherein the average pension fund has seen positive gains, with performance falling by 3.8%.
Quarterly pension fund growth (Source: Moneyfacts UK Personal Pension Trends Treasury Report/Lipper)
Given that April saw the minimum contribution to auto-enrolment schemes increase to 3%, it could well be that members won't be seeing their pension grow quite as expected, as only two of the 36 pension fund sectors that were surveyed avoided a fall. Richard Eagling, head of Pensions at Moneyfacts, reported that "The heaviest losses during the quarter were suffered by Commodity/Energy (-10.4%), Global Property (-6.8%) and UK All Companies (-6.1%)."
Those in their provider's default fund will likely be invested in a spread of more cautious funds, whereas those who've gone for the higher risk, higher reward options may be disappointed by what they find the next time they check on their pension growth. Especially those who are already retired and counting on drawdown for their pension may want to check in with their adviser.
For those who are still far away from retirement, pension saving may seem like a nebulous concept, and any growth or lack thereof that occurs at the moment may very well seem insignificant in the long run. Indeed, front of mind may be the next rise to the minimum auto-enrolment contribution level, set for April 2019, when employees are expected to put away 5% of their earnings.
"A major concern is how employees will react to seeing their minimum pension contributions triple," commented Richard. "With signs of greater volatility returning to the investment markets it will be interesting to see if this dampens enthusiasm for saving into a personal pension or workplace pension, particularly given the higher minimum contribution rates that employees are now facing. It could also encourage individuals to reconsider their retirement income decisions at the decumulation stage by favouring the secure income of an annuity over the greater flexibility and risks inherent in drawdown."
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