Pensions: why do those retiring face ‘massive’ losses despite FTSE highs?

theguardian.com:

A former government pensions minister is warning of “massive losses” for pensioners retiring this year, with big providers telling older customers their funds have plummeted by 20% or more over the past 12 months.

The losses come despite the UK’s FTSE 100 stock market index hitting record highs in recent weeks. What has emerged is that many workers reaching retirement this year were effectively locked into government bonds that fell dramatically in value as the Bank of England raised interest rates and Liz Truss’s ill-fated premiership rocked the bond markets.

Neil Brown, 68, who lives near Oban in Scotland, was shocked to see his latest valuation from Aviva, just as he was hoping to take some of the money to pay for a new kitchen.

The newly retired former transport planner recently received his latest Aviva pension fund report, and was alarmed to see that his fund dropped 20% in value in 2022 – which, coming after a fall of 4% in 2021, has left him 24% worse off over the two years.

“A few years ago Aviva noted in their annual statement that as I was then approaching retirement age, my pension was being moved into safer investments (its lifestyle investment programme),” he recalls. He was told this meant “your pension fund is moved from funds with a greater exposure to the stock market into more cautious investments. This helps reduce your exposure to risk from stock market fluctuations.”

Aviva was not alone in doing this. It is estimated that, in terms of the big providers, about £10bn is being funnelled through “lifestyle” funds. These are often labelled “cautious”, “low-risk” or “protected”. But in the worst cases, these funds lost close to 40% of their value during 2022, much of it during the market convulsions after