Why is my pension pot still increasing?

Ballard

I have two main pensions. A frozen one from a previous employer and one from my current employer. The frozen one dropped something like 18-20% during the first wave of the pandemic but is now higher than it was before. With my current employers pension, the growth went negative for a while but is now more than double what it was before it started.

I don't see a rosy picture for the global economy so don't get where this growth is coming from. I'm not an investment expert but have tried to pick funds that give a fairly balanced portfolio. This isn't a gloating post in the slightest; I'm a mixture of confused and waiting for a big drop. I'd be interested to see what those with a better knowledge of pensions think.

thecornflake

Hi,
I ended up in profit over 2020 in pensions and other investments. This was largely due to the positive vaccine news regaining the losses from the negative covid effects and rebalancing at the right point (mainly between gilts and equity funds). If you have lifestyle funds I assume they would periodically rebalance and depending on timing this could have worked out quite well.
EDIT: Also see the great post further down titled "Investment Returns 2020" where someone has expanded on this.

Ballard

thecornflake said:

Hi,
I ended up in profit over 2020 in pensions and other investments. This was largely due to the positive vaccine news regaining the losses from the negative covid effects and rebalancing at the right point (mainly between gilts and equity funds). If you have lifestyle funds I assume they would periodically rebalance and depending on timing this could have worked out quite well.
EDIT: Also see the great post further down titled "Investment Returns 2020" where someone has expanded on this.

Thanks. I'll take a look at that thread later as it might help me clear some of my confusion.

Alexland

Ballard said:

I don't see a rosy picture for the global economy so don't get where this growth is coming from.

Interest rates have been going down so assets that produce income such as shares and bonds have become more desirable and so valuable.

Ballard

Alexland said:

Ballard said:

I don't see a rosy picture for the global economy so don't get where this growth is coming from.

Interest rates have been going down so assets that produce income such as shares and bonds have become more desirable and so valuable.

That's true but surely only covers it to an extent. Companies are only going to produce an income in the right circumstances and for a lot of companies that's just not going to happen this year. Similarly, Gilts/US Treasury/other sovereign bonds will have become save havens and could well see a negative yield so any funds holding those would take a hit.

dunstonh

A frozen one from a previous employer and one from my current employer. The frozen one dropped something like 18-20% during the first wave of the pandemic but is now higher than it was before.

Frozen has a specific meaning when it comes to pensions.  What you describe is not a frozen pension.     It sounds like a normal money purchase pension that you are not paying into any more.  Most of these are in a surplus position to what they were before the start of 2020.  All quite normal.

I don't see a rosy picture for the global economy so don't get where this growth is coming from.

Many companies have been injected with free money from the Government or dirt cheap lending made available to them.   

Share prices are not just looking at the year ahead.  Some have earnings ratios that equate to 15-25 years earnings at current level.    Some US tech companies are in 3 digits. 

Not every company has suffered with Coronavirus. Some have done very well out of it.     Some are trading much within normality.    So, you are seeing the bad fall and the good rise and the impact of fiscal stimulus.  

Thrugelmir

Combination of free money and increased debt levels.  As the US Treasury mails cheques to all and sundry whether they need the money or not. Why repay debt such as mortgages when interest rates are on the floor. When rising asset prices provide such an easy return.  Difficult to believe that there's a global recession outside of China. 

Ballard

This is all very interesting and I'm glad that I bought this up. I do have some knowledge of financial products as I'm a banker but this isn't really my area.

With regards to future growth, in many cases this will surely be dependent on Joe Public having money to spend so we'd need to see a decent recovery before that happens.

Albermarle

I don't see a rosy picture for the global economy so don't get where this growth is coming from

It is a good question and I think it is probably fair to say that even experienced investors were pleasantly surprised on how 2020 turned out in the end . Although the UK stock market remained well down , the larger US market ( and others ) gained significantly despite the Covid dip.

I think partly the markets are looking forward to post Covid, now vaccines are on the scene .

Ballard

Thrugelmir said:

Combination of free money and increased debt levels.  As the US Treasury mails cheques to all and sundry whether they need the money or not. Why repay debt such as mortgages when interest rates are on the floor. When rising asset prices provide such an easy return.  Difficult to believe that there's a global recession outside of China. 

Sovereign debt has gone through the roof and will be with us for generations. Once we're through this crisis they'll need a plan to reduce this debt. The obvious place would be taxes.

CSL0183

2020 was a good year for Pensions. Crashes in the market as seen back in March 2020 is great news for the majority of the people and a nightmare for those only due to cash in their pensions. 

Share price plummets, you can then buy a lot more shares for your money, it’s really as simple as that. 

Pension performance from April 2020 to April 2021 is likely going to be in the +30% regions for most.