Pension Funds Show Worst New Year Start For Years
UK pension funds have turned in their worst performance in seven years, according to a new survey. Shockingly, less than a fifth of the country’s 5,921 registered pension funds posted growth in January 2016, with the average pension fund showing a loss of 2.5% – last surpassed in January 2009, when funds were 3.5% in the red.
The figure is down from 2.7% in January 2015, when growth bounced back from a 1.6% loss the year before. Overall, the survey shows some significant average pension fund losses during the past seven years, says independent financial web site Moneyfacts.
Impact on personal finances
“The turmoil in global stock markets can have a big impact on personal finances,” said a spokesman for Moneyfacts.
“One of the major effects is on pension savings. Some funds are showing losses of 20% for the month because of the sharp falls in the stock market.
“Pension funds are disappointing and global economic uncertainty is likely to influence returns.”
Younger pension savers have plenty of time to wait for the markets to recover – and with them pension fund profits. For those approaching retirement, that time is not available. Fund managers advise that the best strategy for investors is to sit and ride out the stock market peaks and troughs rather than panic selling.
Mixed results for pensions
The survey does show that a poor start to the year is no reason for funds not to bounce back later. In 2009, funds made an early loss of 3.5% in January but recovered to show a 22.3% gain for the year.However, pensions tied to the London Stock Exchange have showed mixed results since then – from double-digit returns in three years, lower returns in two years and a negative return of 4.6% in 2011.
In 2015, average pension fund growth was 2.6%.
Average pension fund growth in January has been negative in five out of eight years, including 2016. Only in 2011 did the funds stay in negative territory, ending up with -4.6% average growth.
Falls in the value of pension funds can make dramatic differences to expected pension income on retirement, says pension firm Aegon, which cautions against taking cash early while markets remain volatile. The firm says losses in the first two years of retirement can knock £15,500 off the value of a £100,000 pension fund.