Political turbulence helped pension fund growth to reach its best figure since 2009, according to a new report. One of the short-term consequences from the political shocks that occurred in 2016 saw pension returns hit a seven-year high.
The Moneyfacts Personal Pension and Annuity Trends Treasury Report has revealed that pension funds enjoyed an average growth of 15.7 per cent. This is the best annual figure since 2009 and represents a fifth consecutive year of positive returns.
The decision by the majority of British voters to leave the EU following the referendum in June 2016, coupled with Donald Trump’s victory in the US Presidential election, caused stock markets to soar.
In fact, the FTSE 100 hit record highs in 2016 and analysts have largely put this down to Brexit. Most of the companies in the 100 Index have major investments overseas and therefore were able to profit from a slump in the pound.
This was followed by what became known as the ‘Trump Bump’, in anticipation of policies from the new US President that would also benefit firms in the FTSE 100.
Whether that trend can be sustained through 2017 is another matter.
According to Richard Eagling, head of pensions and investments at Moneyfacts Group: “For all the economic and political uncertainty that 2016 brought, it will be remembered as a productive year for the performance of most pension and drawdown funds.
“Defined contribution pension schemes and income drawdown are in the spotlight like never before.”
Defined contribution schemes involve a figure or percentage of money set aside by a company for the benefit of its employees. While income drawdown is an unsecured pension that is intended to give you a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose.
Eagling added: “The record numbers saving into defined contribution pension schemes and using income drawdown have placed even greater importance on the ability of funds to deliver strong performance if individuals are to have any chance of generating a reasonable retirement income.”
As the table below shows, 2011 was the only time during this seven-year period when pensions funds dropped:
Scottish Widows‘ retirement expert, Robert Cochran welcomed the good news, but added it’s important for employers who look after workplace schemes to check and compare investment performance:
“While it’s great to see pension savings grow as markets rise, it’s important to remember that not all funds are performing equally well. Most people saving in a workplace pension stay in the default investment option, so as a part of the ongoing scheme governance employers should be analysing both the performance and the appropriateness of these default strategies. Advisers can play an important role in supporting the employer with investment governance.”
Read more stories on pensions and retirements at Director‘s financial planning zone, in association with Scottish Widows