After dramatic falls in expected retirement income due to the COVID -19 market turmoil in March, people with DC pensions should already be seeing encouraging signs of a recovery, according to the new Hymans Robertson Member Outcomes Tracker*.  Many DC members have already recovered more than half of the falls from the worst period of market experience in decades, with some now unlikely to see their retirement income suffer at all.

Although those 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, this impact reduced to about a 10 per cent fall in retirement income by the start of May. Those approaching retirement were previously facing a 10 per cent to 15 per cent drop but this is now less than 5 per cent. Those impacted least are Millennials, who had seen a dip of 5 per cent to 10 per cent and are now almost back on track relative to their longer-term retirement goals.

The leading pensions consultancy’s new Member Outcomes Tracker monitors changes to the expected retirement incomes (excluding State Pension) of three typical pension scheme members and tracks the impact of the last few months on their expected outcome. The Tracker assumes members are fully invested in equity markets in the early years of their savings journey, and in a diversified mix of assets as members approach retirement.  It was designed to help schemes guide members and navigate the COVID-19 pensions landscape. The analysis tracks the rise and fall, by percentage, in expected retirement income of different generations over the course of this year so far, using 31 December as the starting point. It uses Hymans Robertson’s Guided Outcomes technology to translate short term market experience into the impact on members’ retirement outcomes for members at different stages of their pension savings journey. It is designed to help schemes put the recent market events into context and inform appropriate messaging for distinct groups of members. 

Commenting on the findings of the Index, Callum Stewart, DC Investment Consultant, Hymans Robertson, who undertook the analysis says:

“Baby Boomers aged 60 and approaching retirement could have seen a fall of only 4% in the value of their fund, with more defensive approaches helping to protect their pot as they near retirement.  Those least impacted by the recent market events will be the youngest savers, for example Millennials in their 20s, with a fall in longer term income expectations of less than 5 per cent as they will benefit from many years of future contributions and investment growth. The hardest hit will be those in their 40s, Generation X, who will have seen a fall of about 10 per cent in their longer-term income expectations and have fewer options to recoup this, although there are signs of improvement in this picture.”

Explaining the decisions facing people due to the fall in their expected income, Callum continues:

“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. “

By illustrating the impact on longer term outcomes, the tracker aims to help employers, pension scheme trustees and governance committees identify potential areas of focus as they communicate with different groups of DC members.