DC pensions 'recovering' from coronavirus market turmoil

Defined contribution (DC) pension schemes have partially recovered from coronavirus market turmoil, leading to improved expected retirement income estimates across all age groups in comparison to March, according to Hymans Robertson.

Citing its Member Outcomes Tracker, Hymans Robertson said DC members in their 40s could have seen a reduction in their expected retirement income of between 20 per cent and 25 per cent at the worst point in March, but this was reduced to about a 10 per cent fall by the start of May.

Those nearing retirement were previously facing a 10 per cent to 15 per cent drop, but this has now been reduced to less than 5 per cent.

The least impacted were millennials, who had seen a dip of 5 per cent to 10 per cent but are now almost back on track relative to their longer-term retirement goals.

Hymans Robertson DC investment consultant, Callum Stewart, said: “Recent falls in markets have inevitably reduced expected retirement incomes but whether members should consider their retirement options due to these falls or simply ‘weather the storm’ is perhaps less clear.

“Members will have other priorities right now such as their health and employment and continuing to pay into their pension could be challenging. It is vital, therefore that care is taken to provide enough comfort and guidance to members, whilst at the same keeping them engaged in their pension investments.”

Hymans Robertson also examined the subjects that should be considered when communicating with DC members of different age groups, making generalisations about where their retirement savings might stand.

The firm commented that members of Generation X could consider the impact of paying more into their pension or think about being more flexible around the timing of their retirement, though they could also opt to “weather the storm” and review options again later.

Baby Boomers who are nearing retirement age and have moved their investments into more defensive assets are more likely to have been protected from the turmoil, according to Hymans Robertson.

For millennials, the firm said they need to be aware of “the importance of contributions and see that pension saving is for the long term”, adding that “shocks and recoveries will inevitably happen” between now and when savers reach retirement and that this one is unlikely to greatly affect their pension.

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