2022 has continued to deliver a range of adverse shocks to the economy; with international supply chain issues due to shutdowns in China, Russia’s invasion of Ukraine, a cost of living crisis in the UK, on top of sharply rising inflation and interest rates.
With investors worried about inflation, interest rate hikes and the threat of a recession, the main US market fell by a further 5%, bringing year-to-date losses to -20.6%. The worst annual start for company shares in around 100 years, since the Great Depression. In the UK, the main market fell by -6.2% in June, bringing year-to-date losses to -4.6%.
US market movements meant that in June 2022, we officially moved into a bear market. A bear market is defined as a sustained period of downward trending stock prices, often triggered by a 20% decline from near-term highs. Bear markets are a normal part of capital markets and the last one we saw was in March 2020, following the onset of the pandemic. Every bear market’s different, but looking at historical data they tend to occur every three and a half years and last on average nine and a half months, before markets start trending up. In 2020 the bear market only lasted one month.
However, it’s not just stock markets facing challenges, the Office for National Statistics (ONS) recently released data showing that inflation rose to 9.4% in the 12 months to June 2022, up from 9.1% in May. That’s the highest it’s been since March 1982 when it was 9.1%.
This has had a big impact on bonds. Despite usually being considered a stable investment, all types of bonds have been negatively affected by rising inflation. One way to control inflation is for central banks to increase interest rates, which are directly linked to bonds, hence when interest rates rise, bonds fall in value. As a result our Pre-Annuity Plan, like all 100% bond plans, has been impacted.
These factors all together dramatically influenced financial markets and consequently pension balances across the UK have been volatile in May and June. While we experience this volatility, please be reminded that bear markets are a normal feature of the capital markets cycle and are eventually always followed by a bull market, a period of sustained growth.
Pensions are designed to be long-term investments and have historically weathered all short-term financial storms that have been thrown at them. In fact, as you can see from the tables below, PensionBee’s plans performed better than the US market and, at the time of writing, global equity markets are slowly edging up.
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 2022 (%) | Proportion equity content (%)^ |
|---|---|---|---|
| UK stock market | N/A | -4.6% | 100% |
| US stock market | N/A | -20.2% | 100% |
| Fossil Fuel Free Plan | Legal & General | -11.5% | 100% |
| Shariah Plan | HSBC (traded via SSGA) | -14.9% | 100% |
| Tailored (Vintage 2037-2039) Plan | BlackRock | -14.2% | 73% |
| Tailored (Vintage 2043-2045) Plan | BlackRock | -14.6% | 95% |
| Tracker Plan | State Street Global Advisors | -15.5% | 80% |
Sources: Data is taken directly from the money managers or stock market factsheets. Performance is reported gross of fees (based on unit price) and net of irrecoverable withholding tax. 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. Factsheets are available here: 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.
Savers over 50
| Plan / Index | Money manager | Performance over H1 2022 (%) | Proportion equity content (%)^^ |
|---|---|---|---|
| UK stock market | N/A | -4.6% | 100% |
| US stock market | N/A | -20.2% | 100% |
| 4Plus Plan | State Street Global Advisors | -4.9% | 33% |
| Tailored (Vintage 2019-2021 / Flexi) Plan | BlackRock | -13.5% | 36% |
| Tailored (Vintage 2031-2033) Plan | BlackRock | -13.9% | 61% |
| Preserve Plan | State Street Global Advisors | 0.3% | 0% |
| Pre-Annuity Plan | State Street Global Advisors | -24.4% | 0% |
Sources: Data is taken directly from the money managers or stock market factsheets. Performance is reported gross of fees (based on unit price) and net of irrecoverable withholding tax. 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. Factsheets are available here: 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.
As a result of both company shares and bonds being in negative territory, 2022’s proving a challenging year for those approaching or at retirement age.
In times like this, it’s normal to worry about whether you’re making the right choices with your money and your pension savings. When problems arise it’s a natural instinct to want to take action to prevent further damage or loss. When markets are considerably down many people are tempted to withdraw from their investments and pensions under the assumption their money’s safer in their pockets than in stock markets.
However, the Financial Conduct Authority (FCA), the regulator for over 50,000 financial services firms and financial markets in the UK, outlined some important considerations in its market volatility messaging for when you’re making decisions about what to do with your investments.
First of all, withdrawing your money during a downturn won’t recover losses, in fact all withdrawing does is guarantee your investment loss. Money invested may see recovering markets, so the more you withdraw, the less you’ll have invested to recover when markets eventually rise in value. Finally, if you’re in need of money in the short to medium-term then consider withdrawing from cash savings before accessing your investments (like pensions).
An important note of caution: It’s impossible to forecast what will happen from quarter to quarter, and past performance should never be used to predict future performance.
For our customers who are already in retirement and are perhaps thinking about withdrawing all of their pension, you may want to consider only drawing down what you need and keeping a close eye on the markets. Our Investment Pathway guide can help you select a plan based on your personal retirement aims. 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, this blog, or anything else, you’re welcome to get in touch with our Engagement Team or your BeeKeeper.
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.
