Pension fund returns lowest for five years

2007 proved to be a disappointing year for most pension savers, with pension fund returns at their lowest for five years, according to research from Investment Life & Pensions Moneyfacts.

The research shows that during 2007 the average pension fund posted growth of just 5.41%, compared with an average growth of 9.17% in 2006. The latest figures are also down significantly on the 19.9% growth witnessed back in 2005. Indeed, the average pension fund return was at its lowest since 2002, when the ongoing bear market led to average losses of 15.2%.

The big losers

In some cases pension funds actually posted a loss on the contributions made during 2007. For instance, pension savers who opted for a property fund will have endured an average fall of 13.6% whilst Japanese funds plunged by an average 11.4% over the year. For a number of investors it would have been financially more rewarding to have remained in cash, with the average savings notice account offering a gross return of 3.76% for the year (based on £1K). Almost half (thirteen) of the 27 ABI Pension sectors delivered lower returns than cash.

In contrast to the last few years where most UK pension funds delivered impressive double-digit returns, this year’s performance has been more subdued. The average UK All Companies pension fund has grown just 2% whilst the average UK Smaller Companies fund fell by 5.6% in 2007.

The big winners

Whilst the UK has been amongst those hit hardest by the credit crunch, Asia has emerged relatively unscathed, with China in particular enjoying a phenomenal 2007. As a result, the Far East Excluding Japan sector proved to be biggest success story of the last 12 months, with the average pension fund posting a return of 36%. Global Emerging Markets (35%) and Far East Including Japan (16%) also proved lucrative sectors for pension holders.

Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said: “After enjoying four successive years of strong investment returns, most pension holders will have seen only modest gains to their policies during 2007. Only those pension savers who hold more aggressive funds investing in the Far East and Global emerging markets will look back at the last twelve months with any real sense of achievement.”