End-of-year volatility had a marked effect on the UK’s workplace default pension funds in the last quarter of 2018, with the average default delivering a 7.8 per cent annualised return over five years.
This is significantly below the annualised returns of 10 per cent plus, recorded in both the previous two quarters.
These figures relate to returns for the growth phase of a default fund, aimed at savers, who are still 30 years from retirement — before any adjustments have been made to derisk to protect assets in the years immediately before retirement.
But this increase in market volatility has also eaten into returns for those within five years of retirement.
The latest set of Corporate Adviser Pensions Average (CAPA) data shows default pension funds delivered annualised returns of 6.35 per cent over the past five years, for older savers (within five years of retirement.) In the previous quarter this figure was 8.22 per cent.
This downward trend may continue with stock market volatility continuing in 2019, in the wake of both Brexit uncertainty and weaker productivity figures.
This in-depth analysis of the performance of the largest DC pension schemes in the UK, shows that this volatility has had a particularly marked effect on figures over shorter time.
Looking at the growth phase, the average DC default fund fell by 5.53 per over the past year. This is a significant change on the positive growth of 9.37 per cent seen in the third quarter of 2018.
All workplace DC pension provider in the AE market produced a negative annual return to the end of Q4 2018. The best performing pension plan was Aon MasterTrust, whose default fund fell by just 2.03 per cent over this period.
In contrast LifeSight (WTW) fell by 7.71 per cent, Aegon Master Trust fell by 7.3 per cent and Workers Pension Trust full by 7.2 per cent, and Atlas by 7.17 per cent per cent.
However, LifeSight (WTW) made it into the top three defaults, when three year annualised returns are taken into account – producing annualised returns of 10.44 per cent over this period.
But both Atlas Master Trust and Aegon Master Trust remain in the bottom three performers over this longer time frame (with annualised returns of 6.92 per cent and 6.9 per cent respectively).
The Workers Pension Trust remains in the middle of the pack over this three-year period, with annualised performance of 8.9 per cent, just below the CAPA average of 8.93 per cent.
When it comes the performance of default funds for those heading towards retirement, only one default fund – run by Mercer Master Trust – managed to deliver a positive return across 2018.
Mercer managed to protect its members savings ahead of retirement through the Q4 downturn, delivering an annualised return of 0.3 per cent over this period. The next two best performing trusts: AGL Corporate Pension Trust and Carey Workplace Pension Trust both saw funds fall by 1.17 per cent over this period.
Other funds have failed to effectively shield their older pension savers from the market turbulence. The worst performing funds over the past year include Atlas Master Trust – which fell by 5.73 per cent, Hargreaves Lansdown/BlackRock Consensus 85 (down 5 per cent) and The Lewis Workplace Pension Trust (down 4.92 per cent).
Again it is worth noting that these are one-year figures. Over a three-year timeframe the default funds of both Atlas Master Trust and Hargreaves Lansdown delivered above average returns for those heading towards retirement.
The Lewis Workplace Pension Trust is only marginally below average over this time frame, delivering annualised returns of 5.9 per cent over three years, compared to the CAPA average of 6.5 per cent.