Pension funds suffered their biggest losses last year since the financial crisis in 2008, data from Moneyfacts has shown.

This is the worst performance since 2008, when pension fund growth stood at minus 19.7 per cent, according to Moneyfacts.

Most pension funds struggled to generate positive returns during 2018, with only 9 per cent of funds in positive territory, the data showed.

The worst affected ABI pension fund sectors were UK smaller companies (minus 13.9 per cent), Europe including UK equities (minus 13.6 per cent) and Europe excluding UK equities (minus 12.1 per cent).

Other sectors that suffered double-digit losses were commodity and energy (minus 10.4 per cent), global emerging markets (minus 11.5 per cent), Japan (minus 11.2 per cent) and UK All Companies (minus 11.9 per cent).

UK direct property was the only ABI pension sector to deliver returns of any note at 4.4 per cent.

Until last year, pension freedoms had been operating within an environment of positive pension fund returns, with the average pension fund enjoying strong growth in 2016 at 15.7 per cent, and 10.5 per cent growth in 2017, Richard Eagling, head of pensions at Moneyfacts, pointed out.

He said 2018’s market downturn will increase the focus on investment decisions made by pension savers and drawdown investors.

Mr Eagling said: “The extent of the losses experienced by pension funds last year, combined with the return of greater volatility, raises the question as to whether pensions savers and drawdown investors will be sufficiently alarmed to adjust their investment strategies and reduce their exposure to stock markets.

“The other threat posed by falling pension fund returns is that it could undermine efforts to encourage greater personal pension contributions.”

Average annual pension fund returns

Calendar year % pension fund growth
2018 -6.2%
2017 10.5%
2016 15.7%
2015 2.6%
2014 5.8%
2013 13.9%
2012 10.8%
2011 -4.6%
2010 13.8%
2009 22.3%
2008 -19.7%

Source: Moneyfacts UK Personal Pension Trends Treasury Report/Lipper Reports

Dean Mullaly, managing director at Mark Dean Wealth Management, said he is not surprised by the figures as 2018 saw markets fall across the board.

He said: “Trump, Brexit and the slow down in China were three major threats in 2018 that saw performance suffer.

“According to my own 2018 analysis, the FTSE reached its peak on 22 May and declined by 11.66 per cent overall that year.

“I expect the markets to perform better this year as we get some resolution to Brexit, while it is less likely there will be a rise in US interest rates this year.”

Andrew Pennie, head of pathways at Intelligent Pensions, said: “With a growing number of people keeping their pension invested since pension freedoms, these performance figures highlight the damage that can be done to someone’s retirement fund and the long-term feasibility of their retirement plans.

“This is particularly true where somebody has to sell equities to fund their need for income/cash as they could be crystallising losses that the remaining portfolio will find hard to compensate.

“Creating well diversified decumulation portfolios which also take into account the need for ongoing income and cash in retirement will help to mitigate volatility risk but for the vast majority, professional advice will be needed to achieve this.”

Steve Webb, director of policy at Royal London, said: “2018 has been a bruising year for investors who had previously enjoyed a couple of years of double-digit returns.

“Drawdown investors who are withdrawing on a regular basis from their drawdown pot may need to review whether their current rate of withdrawal is still sustainable.

“Falling stock markets are also bad news for occupational pension schemes, although most defined benefit schemes will be investing increasingly heavily in bonds and will have limited exposure to UK equities.

“As a result, these short-term fluctuations should not have too much impact on transfer values being offered to members to transfer out of their DB scheme into a defined contribution arrangement.”

Nathan Long, senior analyst Hargreaves Lansdown, said: “The last three months of 2018 were horrible for pension savers, with falling stock markets having an immediate knock on to pension pots.

“It is important to remember that a pension is simply a long term savings plan, for anyone with a long time to retirement this is actually great news as their monthly contributions allow them to buy in on the cheap.

“Those closer to retirement, or drawing from their pension for income need to be a bit more careful.

“People drawing an income from their  pension risk running out of money in retirement if they keep nibbling away at their pension by selling their investments to pay for their day to day expenses.

“Taking only the income naturally produced by investments provides a great deal of immunity from these pension pot fluctuations.”

Dippy Singh is a freelance reporter for  FT Adviser

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