How PensionBee’s plans performed in Q1, compared to the market

Romi Savova

by , CEO

at PensionBee

14 Apr 2020 /  

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In the past few weeks the spread of coronavirus has caused ripple effects around the world, with financial markets experiencing some of their most challenging periods since the 2008 recession. Despite the government being swift to introduce a range of measures to protect people’s livelihoods and safeguard the economy, the impact has been far-reaching. As investors, it’s likely you will have experienced some degree of market volatility first hand, no matter how your pension savings are invested.

In addition to the quarterly performance update you’ll receive from your money manager later this month, I wanted to give you a snapshot of how all of the PensionBee plans performed, when compared to the UK and US stock markets. I’m pleased to report that all seven of our plans performed better than the UK and US stock markets during the first quarter of the year, and provided all investors with a degree of protection against the downturn.

It is also important to compare the quarter’s performance to the long-term returns of the market, where most pensions are invested. Indeed, pension savers who have been investing for the last 30 years, as many pension savers ultimately will be, enjoyed cumulative returns of over 300% for the period (comparison of the UK stock market from 1989-2019). Long-term savers create healthy retirement nest eggs and that is what pensions are all about.

Nevertheless, our customers will want to monitor and understand the performance of their pensions throughout time. Read on to learn how our plans performed for savers under 50, who are a long way off retirement, and for those aged over 50, who may be considering drawing down in the near-term. PensionBee has been proud to offer sound financial products in partnership with the world’s largest money managers, BlackRock, State Street Global Advisors and Legal & General.

Remember that past performance is not a guide to future performance and this blog has solely been prepared for informational purposes and not with the intent to influence future investment decisions. As with all investments capital is at risk.

Savers under 50

Plan / Index ^ Money manager Performance over Q1 2020 Proportion equity content ^^
UK stockmarket N/A -24% 100%
US stockmarket N/A -20% 100%
Tailored (Vintage 2043-2045) BlackRock -19% 90%
Tracker State Street -16% 80%
Tailored (Vintage 2037-2039) BlackRock -16% 77%
Match BlackRock -14% 65%
Future World Fund Legal & General -18% 100%
Shariah HSBC (traded via State Street) -9% 100%

Sources: Bloomberg and money managers directly. ^Price taken on the last day of the quarter. Past performance is not an indicator of future performance. Capital at risk. These tables do not take account of any fees that may be levied for a particular investment. Full factsheets are available here: ^^Equity content refers to the amount of exposure each plan has to global stock markets and other listed risk-on assets, such as property.

All of our plans designed for customers under 50 years old outperformed global markets during the quarter as a result of their emphasis on diversification. Most plans are invested in a range of assets such as shares, cash, property and bonds, usually across several different regions. This means that when one type of investment or market dipped, others rose. In addition, a more responsible or ethical investment stance, such as that evident in the Future World and Shariah Plans resulted in better performance.

The majority of our customers are invested in the Tailored Plan, which invests your money differently as you get older, moving it to safer assets as you near retirement. While the plan experienced varying volatility over the quarter, depending on your age and the corresponding weighting of investment in company shares, most customers will see a gross return of around -10 to -19%. The combination of investments in the plan, including fixed income assets such as government bonds, helped to limit the impact of the turbulence seen in global markets.

While it’s been difficult for savers under 50 to see their pension balances falling over the past few weeks, it’s important to remember that short-term fluctuations, including severe ones, are entirely to be expected and in fact contribute to the ability to generate healthy longer-term returns. Indeed, younger savers are unlikely to be negatively impacted by this downturn when they come to retire as the greater the decline in your plan’s value, the more likely you are to benefit from the future recovery of the stock market.

Savers over 50

Plan / Index ^ Money manager Performance over Q1 2020 Proportion equity content ^^
UK stockmarket N/A -24% 100%
US stockmarket N/A -20% 100%
Tailored (Vintage 2025-2027) BlackRock -10% 51%
4Plus State Street -9% 41%
Tailored (Vintage 2019-2021) BlackRock -7% 37%
Preserve State Street 0% 0%

Sources: Bloomberg and money managers directly. ^Price taken on last day of quarter. Past performance is not an indicator of future performance. Capital at risk. These tables do not take account of any fees that may be levied for a particular investment. Full factsheets are available here: ^^Equity content refers to the amount of exposure each plan has to global stock markets.

Early last year we introduced two new pension plans specially designed for those nearing retirement, offering our over 50 customers more options to safeguard their savings ahead of drawdown. The 4Plus Plan targets an annualised return of 4% over a 5-year period, which is consistent with commonly recommended annual drawdown rates of around 4%.

When compared to global markets, the 4Plus Plan had one of the strongest performances of the quarter, delivering a gross return of -9% over the period. The plan is actively managed by State Street Global Advisors who began reducing its investment in more exposed assets, such as company shares, when markets began to fall in February. This quick action helped to safeguard savers from the full impact of volatility, and State Street Global Advisors will continue to keep a close eye on markets and react accordingly in the coming months.

Savers in the Preserve Plan were the most insulated from market volatility, as the principal aim of the plan is to reduce risk, and shelter savings from the impact of short-term market fluctuations for customers intending to make substantial withdrawals in the near future. By making short-term investments into creditworthy companies and safer assets such as fixed income, the Preserve Plan remained stable over Q1, resulting in neither gains nor losses for investors.

Those customers over 50 who are in our default plan, Tailored, also saw a reduced level of losses, when compared to global markets. That’s because the plan automatically derisks investments as an investor ages, moving their savings to safer assets and taking a more conservative approach to investing as they near retirement. For those expecting to retire within the next few years, the Tailored Plan (Vintage 2019 - 2021) has a relatively modest level of investment in company shares and therefore limited stock market exposure, resulting in losses of just -7%.

For our customers who are already in retirement and are perhaps thinking about withdrawing all of their pension as a result of the downturn, I hope that you will take comfort in the range of plans we have on offer, and balance your short-term desire to safeguard your savings with risks of not keeping your savings invested in the longer-term. With that in mind, you may want to consider only drawing down what you need and keeping a close eye on the markets.

Over the coming months we intend to keep you regularly updated on what’s happening with your savings and if you have questions about your plan’s performance, or anything else, you’re welcome to get in touch with your BeeKeeper.

An important note of caution: It’s always impossible to forecast what will happen from quarter to quarter, and past performance should never be used to predict future performance. However, it is reasonable to prepare ourselves for further falls as coronavirus has continued to have an impact on the global economy in the first weeks of April. When markets fall, it’s tempting to consider withdrawing your money to protect it or moving it to lower risk investments, however, there’s a risk that investments could be sold at a loss and you may miss out on any increases in value in the future when markets recover.

On the contrary, when markets are not doing well, there are more opportunities for investors. If you make regular contributions to your pension, you may wish to consider continuing to make those contributions as you’ll be able to invest at lower prices than before the market downturn.

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