Defined contribution pensions, or, to many, personal pensions, assets (funds) have increased by 10% since April. Hopefully this means larger pension funds to buy a bigger annuity. Thanks to a really ’bullish performance’ by equity markets around the world, the asset value of UK defined-contribution (DC) pension accounts has increased by 10% since April to a new combined total of £418bn, and this means that things are looking up for DC pensions but their value is still much lower than two years ago, in 2007
According to a new report from Aon Consulting, the outlook for the pensions market is improving but there needs to be a further 32% increase in values to bring DC assets back to the £550 bn value of 2007. This good news brings difficult decisions for many older workers because an employee who turned 65 in January of this year will have a pension annuity income of £266 less per year than an employee with a 65th birthday in April this year.
Helen Dowsey, of Aon Consulting, commented that although global stock markets have seen one of the strongest rallies ever seen over the past month which has had a positive effect on pension fund values and on the projected retirement income for UK retirees, this isn’t the whole story. Unfortunately, because annuity rates are still at something of a low this has wiped out some of the overall value of the investment gain.
Given that DC pension pots have fallen dramatically since the start of the credit crunch, it is far too early to say we are witnessing a real recovery. For those older workers, when to retire can be a bit of a birthday fluke with some doing significantly better than others by virtue of their 65th birthday falling at a time when the stockmarkets are up.
However, by ensuring that sensible investment policies are taken on board in the years running up to retirement, this birthday fluke can probably be avoided. In particular, by moving funds from riskier asset classes to those that better match the prices of pension annuity rates it has been possible to weather the storm of the credit crunch for many close to retirement. It is never too late to consider revising investment strategies and figuring out exactly what is required to live on in retirement and how best to get to that outcome.
