A million older workers face new pension misery: Bond rout wipes out a third of funds – just as retirement looms billions have been wiped from the value of older worker pensionsBy Patrick Tooher for the Sunday Mail Posted: 5:05 PM EST, December 31, 2022 | Updated: 5:41 PM EST, December 31, 2022
The pension plans of up to a million workers are in tatters as the recent collapse of supposedly safe government bonds has rattled the value of their pension funds. plans over the past two decades with household names such as Legal & General, Fidelity Aegon, Aon and Scottish Widows. Their pension pots are automatically transferred to so-called “lifestyle” funds, usually five years before retirement age. Catastrophe: Kwasi Kwarteng delivers its mini-budget in September. the yield on government bonds, known as gilts, causing bond prices to fall sharply. The sell-off accelerated after ex-Chancellor Kwasi Kwarteng’s disastrous mini-budget in September until the Bank of England stepped in with a £19billion bailout. still one of the worst performing major asset classes of 2022. This means that more than £4.5bn has been wiped out of the value of older workers’ pensions, with around £15bn invested in these lifestyle bond funds, according to the AJ Bell investment platform. As a result, around 850,000 workers have lost an average of 32% this year. England and their pension organization. The irony is that these funds have included bonds because they are traditionally seen as safe assets, but that idea has been confounded over the past 12 months.” This has led to further criticism of lifestyle funds and their default, one-size-fits-all approach to investing, which shifts savers from equities to bonds as they approach retirement, regardless of individual circumstances, the Bank of England and their pension provider,” said said former Pensions Minister Ros Altmann “Lifestyle funds are totally unsuitable for many people. They don’t fit their way of life anymore but nobody asks the customer. The chickens are coming home to roost “The latest pension shock follows the one that engulfed end-pay systems during the recent gilt crisis when the use of liability-driven investing (LDI) strategies revealed dangerous levels of hidden leverage in the financial system. salary plans – which pay an income guaranteed by the employer in retirement – lifestyle funds are an essential part of defined contribution (DC) plans, where the individual bears all the investment risk. that there was “an impact on the DC diets as well.” “If you’re an investor approaching retirement and in a lifestyle plan that’s largely invested in bonds, the value of their plan will have gone down,” he said. “People will start to see this in their annual statements, if they’ve ‘not already,'” Counsell added. He urged members of defined-contribution plans to ‘think carefully’ about their retirement planning. AJ Bell said designing a default fund was “a thankless and difficult task. One fund for hundreds, if not thousands, of people in the workplace, all with different attitudes towards risk and different financial circumstances. Invariably, this leads to default funds being simply the least bad option. “Savers should remember that in almost any retirement plan, they can invest outside of the default fund, in a fund that suits them best.” Obviously, that involves rolling up your sleeves and doing a bit of homework, but the reward offered is a richer retirement.
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