Defined contribution (DC) pensions are showing positive signs of market recovery after dramatic falls in the number of expected retirements this year due to the ongoing coronavirus pandemic.
Hymans Robertson’s DC tracker shows many scheme members have already recovered more than half of the falls from the worst period of market shares experienced in the UK for decades.
The tracker monitors changes to the expected retirement incomes (excluding State Pension) of three typical pension scheme members and tracks the impact of the last few months on their expected outcome, assuming members are fully invested in equity markets in the early years of their savings journey, and a more diversified mix of assets as members approach retirement.
Hymans Robertson said many DC pension holders are now unlikely to see their retirement income suffer at all.
The tracker showed Gen X savers saw a reduction in their expected income of between 20 and 25% at the worst point of the market crash in March; this impact reduced to 10% at the start of March.
DC investment consultant Callum Stewart said: “The hardest hit will be those in their 40s, Gen X, who will have seen a fall of about 10% in their longer-term income expectations and have fewer options to recoup this, although there are signs of improvement in this picture.
“Baby Boomers aged 60 and approaching retirement could have seen a fall of only 4% in the value of their fund, with more defensive approaches helping to protect their pot as they near retirement.”
Millennials remain the least impacted generation and experienced a dip to 10% and are now back on track to longer-term retirement goals.
Stewart said the recent market volatility had “inevitably reduced expected retirement incomes”.
“Members will have other priorities right now such as their health and employment and continuing to pay into their pension could be challenging,” he said.
“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.”