There are encouraging signs of recovery for the expected retirement income of defined contribution (DC) pension scheme members in the UK following dramatic falls in March due to the COVID-19 crisis.
That is according to Hymans Robertson's new Member Outcomes Tracker, which shows that many DC members have already recovered more than half of the falls recorded during the worst period of market volatility.
Those in their 40s could have seen a decline in their expected retirement income of between 20% and 25% at the worst point in March, but this had reduced to around 10% by the start of May.
Members approaching retirement were previously facing a 10% to 15% drop, but this is now less than 5%, while Millennials, who had seen a dip of 5-10%, are now almost back on track relative to their long-term retirement goals.
The tracker assumes that members are fully invested in equity markets in the early years of their savings journey, and in a diversified mix of assets when approaching retirement.
“Those least impacted by the recent market events will be the youngest savers,” said Hymans Robertson DC investment consultant Callum Stewart. “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% in their longer-term income expectations, and have fewer options to recoup this, although there are signs of improvement in this picture.”
The Member Outcomes Tracker monitors changes to the expected retirement incomes of three typical pension scheme members over the last few months, excluding state pension.
This is shown below (Orange = baby boomer, blue = Generation X, grey = millennial):
The tracker was designed to help schemes navigate the COVID-19 pensions landscape, and to assist employers, trustees and governance committees in identifying potential areas of focus as they communicate with different groups of DC members.
“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,” Stewart continued.
“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.”
Author: Chris Seekings
Image credit: iStock
Graphic credit: Hymans Robertson