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Virus fallout wipes 9% off near-retirement savings

Virus fallout wipes 9% off near-retirement savings

Pension savers close to retirement could have seen their savings fall by 8.7 per cent on average during the first quarter of 2020, according to research.

Research from pensions advisory Isio found market volatility caused by coronavirus could have caused pension savings to fall by as much as 20.8 per cent in the last three months, with an average decline of almost 9 per cent.

Formerly KPMG’s UK pensions practice, the newly formed firm analysed the performance of eight dominant master trusts' default strategies.

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It found savers who were two years off their retirement were better protected from the current market volatility as they were more likely to have investments in defensive strategies with higher a allocation to gilts which offered greater protection.

These individuals saw their pension funds fall between 6.9 and 11.5 per cent.

In comparison, those who still have 30 years until their retirement could have seen their pensions fall between 13.2 and 20.8 per cent over the same three-month period.

This is because these savers are in the growth phase of the master trust default strategies, and therefore have a heavier exposure to equity-driven strategies, which were the worst hit by the recent market volatility, the firm said.

Mark Powley, head of DC investment at Isio, said although younger savers have been hit the hardest they must continue with their investment strategy as funds will bounce back in the long-term.

He said: “Although younger members have been more affected by market volatility, for these members future contributions will be the main driver behind their pot size in the future. We would therefore encourage these investors to be patient and take more of a long-term approach to assessing success or failure in the growth phase.

“On the flipside, recent sell-offs have illustrated the need to diversify in the right way and dial down risk as members approach retirement. Getting this right has a massive impact on members’ retirement outcomes and chasing returns could result in disaster.”

amy.austin@ft.com

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