Over 2020 financial markets have experienced some of their most challenging moments since the 2008 recession. The British economy contracted by over 20% in April and with many businesses closing and unemployment on the rise, it is likely the economic fallout from the crisis will continue for several years. Most investors will have experienced some degree of market volatility first hand, no matter how your pension savings are invested.
Last quarter we published a summary of how our plans performed in the wake of coronavirus. Our customers have found this comparison very helpful and many have requested an update. So we are pleased to present the year-to-date performance of the PensionBee plans when compared to the UK and US stock markets. We have chosen these benchmarks because our plans are diversified and most of our customers are exposed to movements in the stock markets of both countries. In addition, most of our customers will have exposure to other assets, including bonds.
Overall, global markets recovered from their lows in the second quarter of 2020. However, the UK and US stock markets are still down (-17%) and (-3%) respectively year-to-date representing an average of (-10%). Against this backdrop, our plans were resilient - most of our plans were only slightly down for the year, substantially outperforming the UK stock market owing to the benefits of diversification. Our plans for the over 50s have remained well insulated and our oldest customers in the Tailored Plan, as well as customers in our Preserve Plan, have recorded flat performance for the year, avoiding losses that may cause millions to delay their retirements.
As always, it is also important to compare this year’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. PensionBee has been proud to offer sound long-term financial products in partnership with the world’s largest money managers, BlackRock, State Street Global Advisors, HSBC 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 H1 2020 (%) | Proportion equity content (%)^^ |
|---|---|---|---|
| UK stock market | N/A | -17% | 100% |
| US stock market | N/A | -3% | 100% |
| Shariah | HSBC (traded via SSGA) | 11% | 100% |
| Match | BlackRock | -3% | 68% |
| Future World | Legal & General | -4% | 100% |
| Tailored (Vintage 2037-2039) | BlackRock | -5% | 76% |
| Tracker | State Street Global Advisors | -6% | 80% |
| Tailored (Vintage 2043-2045) | BlackRock | -7% | 76% |
Sources: Yahoo Finance, Investing.com and direct from the money managers. ^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 fact sheets are available here: www.pensionbee.com/plans. Plan performance may vary slightly from published factsheets due to timing differences and other negligible methodological differences. ^^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 have outperformed the average return of the FTSE 100 and the S&P 500 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. This quarter, American markets (represented by the S&P 500) outperformed the UK market (represented by the FTSE 100) and our customers benefited from this. US technology stocks have been significant beneficiaries of the transition to a digital economy and the Shariah Plan, which has substantial holdings in Microsoft, Apple, Facebook and Google, outperformed its peers.
While it’s been difficult for savers under 50 to see their pension balances fluctuating over the year, 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 their plan’s value, the more likely they are to benefit from the future recovery of the stock market.
Savers over 50
| Plan / Index ^ | Money manager | Performance over H1 2020 (%) | Proportion equity content (%)^^ |
|---|---|---|---|
| UK stock market | N/A | -17% | 100% |
| US stock market | N/A | -3% | 100% |
| Preserve | State Street Global Advisors | 0% | 0% |
| Tailored (Vintage 2025-2027) | BlackRock | -1% | 51% |
| Tailored (Vintage 2019-2021) | BlackRock | 1% | 36% |
| 4Plus | State Street Global Advisors | -4% | 13% |
Sources: Yahoo Finance, Investing.com and direct from the money managers. ^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 fact sheets are available here: www.pensionbee.com/plans. Plan performance may vary slightly from published factsheets due to timing differences and other negligible methodological differences. ^^Equity content refers to the amount of exposure each plan has to global stock markets and other listed risk-on assets, such as property.
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 has protected our customers from steep falls in their pensions, delivering a gross return of (-4%) 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 continued to be well-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 2020, 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 reported a small gain for the year.
For our customers who are already in retirement and are perhaps thinking about withdrawing all of their pension as a result of the downturn, we 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 will continue 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. 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 increase your contributions as you’ll be able to invest at lower prices than before the market downturn.
