Defaults through the downturn – derisking protects older savers

Older savers have been insulated from the worst ravages of the coronavirus-led market downturn, with most providers barely 10 per cent down from the beginning of the year to the market trough of 23 March.

Data gathered by a sample of large providers by Corporate Adviser, shows most providers saw drops of between zero and 11 per cent between 1.1.20 and 23.3.20, the date the stock market reached its most recent nadir, when the FTSE100 was 34 per cent down. Outliers were Aegon, whose older savers in the Default Equity & Bond Lifestyle Fund actually saw a 9 per cent increase over the period, thanks to a bump in bond prices, and Legal & General’s giant Multi Asset Fund, which was down 14 per cent.

Older saver, reaching state pension age on 23 March 2020

Younger saver, aged 35

However, the L&G fund was up more than 16 per cent over the five years to 23.3.20, for savers reaching SPA on that date, as were all other providers, highlighting the strong gains that had preceded 2020’s market fall.

Two providers, Now: Pensions and Smart Pension, refused to give data on their performance. Now: Pensions said it did not think going to print with performance would help with its objective of calming members. Smart Pension said it did not think presenting a narrow set of data gives members a clear picture of their long term savings.

Standard Life experienced the lowest fall for younger savers from the beginning of the year to the point of maximum drawdown, down 17 per cent, but it also experienced the lowest 5-year return, up just 0.61 per cent. Nest had the highest 5-year return for younger savers, up over 15 per cent over the period.

Markets have recovered some ground since 23.3.20, with the FTSE100 today up 17 per cent since the 23 March low point.

Corporate Adviser editor John Greenwood says: “What these figures show is that the risk reduction strategies operated by modern workplace pensions have generally insulated savers from the worst ravages of the recent stock market downturn. While the FTSE100 hit a point 34 per cent lower than its New Year’s Day value, savers approaching retirement saw far less severe falls, and should remember their funds were falling from higher levels because they have been boosted by years of earlier strong returns, as shown in Corporate Adviser’s Master Trust and GPP Defaults Report, published today. All providers have delivered positive returns over the last five years, both for younger savers and for savers with decades until they retire.

“People making regular contributions into workplace pensions should stick with their plans, because when markets are cheap they are buying assets at a low price. What’s more, if they stop contributing they will miss out on their employer’s contributions and tax relief – effectively free money paid into their plans.”

The People’s Pension CIO Nico Aspinall says: “Pension saving is about investing for the long-term. Although we’ve seen recent markets cause a reduction in the value of people’s pension savings, our members have received significant returns ahead of inflation on their savings over the past five years; as well as benefiting from employer contributions and tax relief topping up their contributions.

“We have a fifteen year glidepath reducing risk for members as they come towards claiming their money, this has protected their pension savings from the worst of the market falls and should give them comfort that their retirement plans are still secure.”

Nest CIO Mark Fawcett says: “Pension saving is a long game – people can be saving for up to 40 or even 50 years, so it’s important not to forget the bigger picture. Younger savers should comfortably ride out shorter term fluctuations and at Nest we take steps to protect members’ pots as they get closer to retirement.”

A Scottish Widows spokesperson says: “The short term performance periods here requested by Corporate Adviser are not reflective of our typical customer. Customers tend to be invested for much longer periods and their portfolios more likely to withstand short term market volatility with the benefits of regular contributions and pound cost averaging over longer periods.”

These figures show both performance from the beginning year to the bottom of the recent market trough – 24^th March 2020, and also over the five years to that date. All figures are after a typical 0.5 per cent AMC. The providers included in the sample manage workplace pensions for more than 15 million people.