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15 Nov 2019

News

Pension fund returns lowest for five years

“After enjoying four successive years of strong investment returns, most pension holders will have seen only modest gains to their policies during 2007. Only those pension savers who hold more aggressive funds investing in the Far East and Global emerging markets will look back at the last twelve months with any real sense of achievement.”

New research from Investment Life & Pensions Moneyfacts has revealed that 2007 proved to be a disappointing year for most pension savers, with pension fund returns at their lowest for five years.

The research shows that during 2007 the average pension fund posted growth of just 5.41%, compared with an average growth of 9.17% in 2006. The latest figures are also down significantly on the 19.9% growth witnessed back in 2005. Indeed, the average pension fund return was at its lowest since 2002, when the ongoing bear market led to average losses of 15.2% (see table 1).

Table 1: Average annual pension fund growth 2002-2007

 

Year

 

2007

 

2006

 

2005

 

2004

 

2003

 

2002

 

% Growth

 

5.41%

 

9.17%

 

19.91%

 

9.75%

 

18.06%

 

-15.23%

Source: Lipper Hindsight. Figures to 1 January 2007, total return, gross, no initial charges.

 

The big losers

In some cases pension funds actually posted a loss on the contributions made during 2007 (see table 2). For instance, pension savers who opted for a property fund will have endured an average fall of 13.6% whilst Japanese funds plunged by an average 11.4% over the year. For a number of investors it would have been financially more rewarding to have remained in cash, with the average savings notice account offering a gross return of 3.76% for the year (based on £1K). Almost half (thirteen) of the 27 ABI Pension sectors delivered lower returns than cash. 

In contrast to the last few years where most UK pension funds delivered impressive double-digit returns, this year’s performance has been more subdued. The average UK All Companies pension fund has grown just 2% whilst the average UK Smaller Companies fund fell by 5.6% in 2007.

Table 2: Worst performing pension fund sectors 2007


ABI Pension Fund Sector

% Growth 2007

% Growth 2006

Property

-13.61

19.15

Japan

-11.44

-14.22

UK Smaller Companies

-5.61

23.37

UK Equity Income

-0.34

18.53

Sterling Other Fixed Interest

0.05

4.42

Source: Lipper Hindsight. Figures to 1 January 2007, total return, gross, no initial charges.

The big winners

Whilst the UK has been amongst those hit hardest by the credit crunch, Asia has emerged relatively unscathed, with China in particular enjoying a phenomenal 2007. As a result, the Far East Excluding Japan sector proved to be biggest success story of the last 12 months, with the average pension fund posting a return of 36%. Global Emerging Markets (35%) and Far East Including Japan (16%) also proved lucrative sectors for pension holders. (see table 3).

Table 3: Best performing pension fund sectors 2007


ABI Pension Fund Sector

% Growth 2007

% Growth 2006

Far East Excl Japan

36.81

17.09

Global Emerging Markets

35.55

18.08

Far East Incl Japan

16.33

3.43

European Ex UK

13.53

18.37

Global Equities

10.60

7.15

Source: Lipper Hindsight. Figures to 1 January 2007, total return, gross, no initial charges.

Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said: “After enjoying four successive years of strong investment returns, most pension holders will have seen only modest gains to their policies during 2007. Only those pension savers who hold more aggressive funds investing in the Far East and Global emerging markets will look back at the last twelve months with any real sense of achievement.”

 

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry. 

 

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