Zarah ChoudharyPension funds in the UK have been delivering better returns than many savers expect, with an average annual growth rate approaching 8% over the past five years for those still 30 years from retirement.
The Pension Performance Benchmark analysis from PensionBee, which looked at several major pension providers, found that many savers may be underestimating the potential growth of their pensions.
A previous survey conducted by PensionBee revealed that more than a third of savers between the ages of 18 and 54 anticipated returns of between 5% and 7%.
However, the latest analysis, based on data from the Master Trusts and GPP Defaults Report by Corporate Adviser, found that leading pension funds have delivered an average annual return of 7.72% over the past five years for savers 30 years away from retirement.
This was higher than the 5% to 7% range that 34% of British savers, according to PensionBee’s survey, expected.
Some of the standout results include Aegon’s Workplace Default (ARC) and associated retirement years (GPP), which reported an annualised return of 7.28%, while Aviva’s Master Trust and GPP – My Future Universal strategy performed even better, achieving a return of 10.03%.
LGIM’s Multi Asset Fund (GPP) returned 5.28%, while the Nest 2040 Retirement Date Fund saw growth of 8.29% and Now: Pensions’ Diversified Growth Fund returned 5.1%.
PensionBee’s own LifePath 2055-2057 Fund recorded a strong return of 10.7%, with Royal London’s Balanced Lifestyle Strategy (Drawdown) (GPP) at 7.54%, Scottish Widows’ PIA Balanced (Targeting Flexible Access) (MT & GPP) returning 7.96%, and The People’s Pension Balanced Profile delivering 7.34%.
Over the same period, the average annual return for those just five years from retirement was 5.27%, which more closely aligns with the expectations of those aged 55 and older.
According to PensionBee’s survey, 37% of respondents in this age group anticipated returns between 5% and 7%.
For this group, Aegon’s Workplace Default (ARC) & associated retirement years (GPP) posted a return of 7.03%, while Aviva’s Master Trust and GPP – My Future Universal strategy returned 5.43%. LGIM’s Multi Asset Fund (GPP) remained steady with a return of 5.28%, and the Nest 2030 Retirement Date Fund recorded a return of 5.78%.
Now: Pensions saw a return of just 3.3%. PensionBee’s LifePath 2031-2033 Fund delivered 6.2%, Royal London’s Balanced Lifestyle Strategy (Drawdown) (GPP) reported 4.23%, Scottish Widows’ PIA Balanced (Targeting Flexible Access) (MT & GPP) returned 5.25%, and The People’s Pension Balanced Profile recorded a return of 4.96%.
The data therefore suggested that a longer investment window allows for greater market exposure and stronger returns.
The five-year horizon data emphasised that, while returns may be more conservative for those closer to drawing their pension, the strategies in place ensure that pension savings are protected as individuals approach retirement.
Clare Reilly, chief engagement officer at PensionBee, said: “These results demonstrate the importance of long-term planning and investment in pension funds.
“The average fund performance exceeding saver expectations shows that with a well-planned strategy, pensions can deliver strong returns over time.
“The findings underline the value of continued engagement with pension plans, as well as the importance of selecting a provider that offers flexibility in investment strategy based on individual timelines and risk profiles.
“We encourage savers to remain focused on their long-term goals and make the most of growth opportunities while they’re still accumulating savings in order to have a happy retirement.”
