A typical worker could be £5,000 a year worse off in later life if they retire after a bad year for pension funds rather than in a good year, according to research.
In a study commissioned by the Trades Union Congress (TUC), the umbrella body for unions representing 5.6 million workers, the Pensions Policy Institute analysed historic investment returns.
The research showed that a pension saver’s pot size can vary by up to 40 per cent, and it is just the luck of the draw, the TUC reported.
A man on median earnings who has been in a defined contribution (DC) scheme for 40 years would have an annual income of £16,804 if he retired in 2017.
If the retirement year was 2001, for example, the annual income would have been £23,070.
The impact of investment returns on the workplace savings of women is similar, the TUC reported.
However, due to a pattern across the last 40 years of lower wages and savings for women workers, female retirees are likely to have greater reliance on the state pension.
The analysis therefore focused on historic figures for median male earners, the union body stated.
According to Frances O’Grady, TUC’s general secretary, “someone who has saved all their working life should not have to play roulette with their pension fund”.
She said: “But if their retirement lands on a bad year, market volatility could leave them with a much poorer standard of living for the rest of their life.”
For Ms O'Grady, “every saver should be enrolled into a well-governed scheme that is able to cushion members from the worst markets can throw at them."
She said: “It is time to implement plans that were passed into law two years ago for collective pensions, which can be less volatile and more efficient than traditional schemes."
A third way pension scheme structure, known as collective defined contribution, aimed to fall in between defined benefit (DB), which places risk on the employer, and defined contribution, which places risk on the employee, was pushed through as part of the Pension Schemes Bill in 2015.
However, in October of the same year, Baroness Ros Altmann, who was at that time pensions minister, dropped these changes.
The TUC is not the first institution looking at investment returns in DC schemes.
According to research from JLT Employee Benefits, individuals who are invested in the DC default fund with the worst performance could be missing out on over £300,000 of additional savings by the time they are 55.
maria.espadinha@ft.com
