DC pension savers are already seeing “encouraging signs of recovery” in their retirement savings, as stock markets recover, according to data from pension consultants.
The Hymans Robertson Member Outcomes Tracker shows many DC members have already recovered more than half of the falls from the worst period of market experience in decades — with some now unlikely to see their eventual retirement income suffer at all.
However, this analysis shows that the market falls have had different impacts on various generational groups.
Millennials are likely to be least effected – due to the fact that they have many years to save until their retirement date.
Baby-boomers may be closer to retirement, but many are now in more diversifed portfolios with reduced equity holdings. As a result it is Generation X (aged between 40 and 55) who are likely to be hardest hit, as they have greater equity exposure but fewer years to recoup losses.
The Hymans Robertson analysis says those in their 40s could have seen a reduction in their expected retirement income of between 20 per cent and 25 per cent at the worst point in March, this impact reduced to about a 10 per cent fall in retirement income by the start of May.
Those approaching retirement were previously facing a 10 per cent to 15 per cent drop but this is now less than 5 per cent.
Those impacted least are millennials, (age up to 40) who had seen a dip of 5 per cent to 10 per cent and are now almost back on track relative to their longer-term retirement goals.
This pension tracker monitors changes to the expected retirement incomes (excluding State Pension) of three typical pension scheme members, and gives an indication of the impact of the last few months on their expected outcome. The tracker assumes members are fully invested in equity markets in the early years of their savings journey, and in a diversified mix of assets as members approach retirement.
It was designed to help schemes guide members and navigate the Covid-19 pensions landscape.
The analysis tracks the rise and fall, by percentage, in expected retirement income of different generations over the course of this year so far, using 31 December as the starting point.
It is designed to help schemes put the recent market events into context and inform appropriate messaging for distinct groups of members.
Hymans Robertson DC Investment Consultant, Callum Stewart says: “Baby Boomers aged 60 and approaching retirement could have seen a fall of only 4 per cent in the value of their fund, with more defensive approaches helping to protect their pot as they near retirement.
“Those least impacted by the recent market events will be the youngest savers, for example millennials in their 20s, with a fall in longer term income expectations of less than 5 per cent as they will benefit from many years of future contributions and investment growth.
“The hardest hit will be those in their 40s, Generation X, who will have seen a fall of about 10 per cent in their longer-term income expectations and have fewer options to recoup this, although there are signs of improvement in this picture.”
He adds: “Recent falls in markets have inevitably reduced expected retirement incomes but whether members should consider their retirement options due to these falls or simply ‘weather the storm’ is perhaps less clear.
“Members will have other priorities right now such as their health and employment and continuing to pay into their pension could be challenging. It is vital, therefore that care is taken to provide enough comfort and guidance to members, whilst at the same keeping them engaged in their pension investments. “