Throughout 2020 most investors will have experienced some degree of market volatility first hand, no matter how their pension savings are invested. At the end of Q1 and Q2 we published summaries of how our plans performed in the wake of coronavirus. Our customers have found the comparison to global stock markets especially helpful, and many have requested an update following the end of Q3. So we’re pleased to present the year-to-date performance of the PensionBee plans when compared to UK and US stock markets.
We’ve chosen these benchmarks because our plans are diversified and most of our customers are exposed to movements in the UK stock market and also in the US stock market. In addition, most of our customers will have exposure to other assets, including bonds.
As the economic effects of the coronavirus pandemic continue to take hold with the UK entering the largest recession on record, the UK stock market has fallen by -20% over 2020. On the other hand, the US stock market has been gradually rising since the initial slump when the pandemic first struck global markets towards the end of March. Overall, it has grown by 6% since the beginning of the year. Against this backdrop, our plans were resilient - most of our plans are now flat for the year, substantially outperforming the UK stock market owing to the benefits of diversification.
As always, it’s 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’ve 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). This shows us that even with periods of short-term volatility, such as the 2008 recession, long-term savers can create healthy retirement nest eggs, and that’s what pensions are all about. PensionBee has been proud to offer robust 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 to date 2020 (%) | Proportion equity content (%)^^ |
|---|---|---|---|
| UK stock market | N/A | -20% | 100% |
| US stock market | N/A | 6% | 100% |
| Shariah | HSBC (traded via SSGA) | 19% | 100% |
| Future World | Legal & General | -1% | 100% |
| Tailored (Vintage 2037-2039) | BlackRock | -1% | 76% |
| Tailored (Vintage 2043-2045) | BlackRock | -3% | 90% |
| Match | BlackRock | -3% | 68% |
| Tracker | State Street Global Advisors | -6% | 81% |
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 UK stock market 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, the US stock market outperformed the UK market, and our customers benefited from this. US technology stocks have been significant beneficiaries of the transition to a digital economy as a result of the pandemic, 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 the current 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 to date 2020 (%) | Proportion equity content (%)^^ |
|---|---|---|---|
| UK stock market | N/A | -20% | 100% |
| US stock market | N/A | 6% | 100% |
| Tailored (Vintage 2019-2021) | BlackRock | 3% | 36% |
| Tailored (Vintage 2025-2027) | BlackRock | 2% | 51% |
| Preserve | State Street Global Advisors | 0% | 0% |
| 4Plus | State Street Global Advisors | -2% | 51% |
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%.
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 has remained stable over 2020, resulting in neither gains nor losses for investors.
Those customers over 50 who are in our default plan, Tailored, are seeing positive returns, substantially higher than those of the UK stock market. 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 (3%) 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 the 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. This is particularly important now given the uncertain economic backdrop, as the exact moment a saver accesses their pension can have a big impact on their ultimate retirement income. Withdrawing money you don’t intend to spend straight away during a downturn could risk depleting your pot substantially.
Over the coming months we’ll 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.
This is part of our quarterly plan performance series. Check out the next quarter’s summary here: How PensionBee’s plans performed in 2020 (as at Q4).
Have a question? Get in touch!
You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
