Pensions  

DC schemes bounce back from January carnage

DC schemes bounce back from January carnage

Total funds in defined contribution (DC) schemes are almost back to their all-time high, having recovered from the heavy losses suffered in January, a report by Close Brothers Asset Management has showed.

At the end of April, funds in DC schemes totalled £546bn. That was up £23bn on the January low, and just £10bn shy of the all-time high of £556bn, which was reached in the first quarter of 2015.

DC schemes continued to build their membership lead over defined benefit (DB) schemes. Close Brothers reported there were now 12.2m people in DC schemes, compared with 11.5m in DB schemes, with the landmark overtake happening at the start of last year.

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Close Brothers said the emphasis on accumulation rather than liabilities in DC schemes meant that, at times of extreme market volatility, it was vital to stay invested and not try to time the market, adding that pensions had “long since shrugged off” the £134m hole blown into them by the 2008 crisis.

“The start to the year was very bumpy indeed, with more than $4trn (£2.74trn) eradicated from global stock markets at 2016’s worst point,” Close Brothers chief investment officer Nancy Curtin said.

“But the recovery in the past three months highlights the importance of staying invested, rather than overreacting to volatility and exiting the market – or avoiding risk altogether.”

She said that simply “stuffing our mattress with cash” was not a sustainable response to volatility, as it would fail to provide for an adequate retirement.

Shane Hyland, a financial adviser with HRW Financial Consultants, said his clients had reacted calmly to the recent market volatility.

He added: “Over the past six months, nobody has rung me up and said ‘put me into cash.’” He said this was because he had talked through with his clients the risks they were willing to take.

On the rise of DC over DB schemes, Mr Hyland said it “had to be done”, as increased life expectancy made DB schemes unsustainable.

He added: “People need to save more, save for longer, or reduce their expectations.”