Was impact of 2008/9 financial crisis as bad as current events on Pensions?

carrspaints

Back in 2008/09, I was under a DB pension scheme. I had no DC pension scheme at that time. That was 13 years ago, I still had a while to go before retirement was on the radar. It is now. My DB pension is now deferred and I have a DC pension instead. It has been utterly decimated this year, and in particular, the past 3 weeks. I contribute 67% of my salary, the company ads another 10%. Current pension pot is smallish (£124k) but should have been £144k had there been no loss or gain on contributions since January. A £20k loss since January.

I understand pension investments are never guaranteed, and with everything that is going on today, almost all pensions, including DB pensions, have been hit hard. The UK government under Truss doesn't seem to be helping matters either.

I know this is likely a crystal ball question, but how do others here feel markets and pensions will play out over the next year or two?  I am sure many who know little about pensions, and how bad times affect them, are likely thinking the same thing. Is what we are seeing today unprecedented in recent decades? How did 9/11 or the 2008/9 crisis affect pensions?

Thanks

El_Torro

What we are currently seeing is certainly not unprecedented. In the GFC of 2008 someone with a globally diversified portfolio invested in GBP would have seen about a 50% drop from the peak, which took a couple of years to recover from. What we’re seeing now could be considered pretty tame, though that depends on how much worse it gets and when stock markets start to recover. 

My personal view is that we shouldn’t expect much of a recovery next year, if any. Stock markets will recover of course, i just don’t think we’ve hit the bottom yet. I’d be surprised if the recovery didn’t kick in before the end of 2024 though. 

[Deleted User]

DB pensions have not “been hit hard”.  

We are in the middle of a bear market, things are volatile  and we will only be able to compare once it plays out. 

carrspaints

Deleted_User said:

DB pensions have not “been hit hard”.  

We are in the middle of a bear market, things are volatile  and we will only be able to compare once it plays out. 

You're right, I did not word that correctly. What I meant was inflation is outpacing typical DB pension increases.

dunstonh

 have a DC pension instead. It has been utterly decimated this year, and in particular, the past 3 weeks. I contribute 67% of my salary, the company ads another 10%. Current pension pot is smallish (£124k) but should have been £144k had there been no loss or gain on contributions since January. A £20k loss since January.

A 20k loss on a £124k pot is not decimated.  Its a mild market crash level.

but how do others here feel markets and pensions will play out over the next year or two? 

Market drops are quite common.   

 Is what we are seeing today unprecedented in recent decades?

You had a larger drop in 2020.  A similar sized one in 2018, 2015/16 and much bigger ones in 2008 and between 2000-2002.

 How did 9/11 or the 2008/9 crisis affect pensions?

9/11 occurred during a sequence of negative events that dragged the markets down for 3 negative years in a row.

jim8888

In 2008/09 I was still working and able to invest on a monthly basis. I also didn't plan on retiring within the next ten years so my attitude then was "Fill my boots!" as the market fell. Same with other market downturns. This time, however, I'm retired and living on my investments and I have to say it feels drastically different! I tell myself that "This too will pass", but it's hard not to look at a 20% drop in your funds and not be bothered by it. 

carrspaints

@dunstonh Thanks for the feedback. If market drops are quite common, and if this one is mild, that rings alarm bells for me - as someone contributing so much of my salary to my pension, whilst living on the sniff of an oil rag. Perhaps I reading too much into your post, but if these falls are common and this one is mild, doesn't that bring into question the notion that pensions are good way to set up for retirement? I feel for those already retired and drawing off a smallish pension or other investment scheme when these drops happen.

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

NedS

carrspaints said:

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

If you were happy to invest 12 months ago at far higher prices, why would you not be absolutely delighted now knowing your monthly contributions into your pension are buying you much more at far cheaper prices. Stopping now would be the absolute worst thing you could do - now is exactly the time to increase contributions and fill your boots whilst things are on offer / going cheap.

dunstonh

carrspaints said:

@dunstonh Thanks for the feedback. If market drops are quite common, and if this one is mild, that rings alarm bells for me - as someone contributing so much of my salary to my pension, whilst living on the sniff of an oil rag. Perhaps I reading too much into your post, but if these falls are common and this one is mild, doesn't that bring into question the notion that pensions are good way to set up for retirement? I feel for those already retired and drawing off a smallish pension or other investment scheme when these drops happen.

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

Whilst you are paying in monthly, drops like this are great news.  Investments are now much cheaper to buy. When it goes back up, it will be these that make more money than the months you bought the investments at higher prices.

In drawdown, the drops are less welcome but you know they are always coming. So, you build your investment and drawdown strategy to cater for them.  Such as having 3 years worth of income in cash and having income units that pay the income into that cash account.  So, in reality, you probably have end up with 5 years worth of cash without the need to sell any units.   Some people dont use cash within their pension but keep it external.  So, they can turn off their income (or reduce it) during negative periods and use the cash they hold externally.  Then when it goes back up, they can use the growth to replenish their cash.

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

Volatility is not this frequent.  You can break a  cycle into three parts.  You never know what bit is next or when you move between them but you typically have the good growth part of the cycle with little volatility.   Then you have the minor growth cycle with a bit more volatility but nothing major.   Then you have the very volatile part of the cycle.   For those paying in monthly, the best cycle for you is the highly volatile one.  Fill your boots whilst there is blood on street.

Or putting it another way, go back two years and in a strong growth year, would you have given this a second thought?  no.  You were happily buying investments at higher prices than today.   Investments are now much cheaper to buy and you are thinking about not buying them

It does get easier with each crash.   Your first one can be extremely worrying.   Your second one less so. By your third or fourth it becomes a bit "here we go again".

carrspaints

NedS said:

carrspaints said:

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

If you were happy to invest 12 months ago at far higher prices, why would you not be absolutely delighted now knowing your monthly contributions into your pension are buying you much more at far cheaper prices. Stopping now would be the absolute worst thing you could do - now is exactly the time to increase contributions and fill your boots whilst things are on offer / going cheap.

I have considered that many times. Of course buying into investments when their unit price is lower means more shares for less £. I never used to look at my DC pension, which I have been contributing to for 5-years. But I have done so daily since 1st Jan, making a note of the pot value, the increase or decrease. Every day. (planned retirement not far off) That has made me more aware of what is going on than ever before. I am sure that is why I am likely more concerned than I possibly should be. It's just hard justifying sticking in £3.5k every month + an annual bonus (contribution carry forward allows me to exceed £40k p.a.) and then seeing my pot value often worth less than it was prior to my last contribution. One step forward, 2 back.

I guess I have to hope world events calm down. But even then, I think it will be a couple of years at least for some form of normality to return to markets. I don't want to be working into my mid/late 60s, but necessity may dictate otherwise.

carrspaints

dunstonh said:

carrspaints said:

@dunstonh Thanks for the feedback. If market drops are quite common, and if this one is mild, that rings alarm bells for me - as someone contributing so much of my salary to my pension, whilst living on the sniff of an oil rag. Perhaps I reading too much into your post, but if these falls are common and this one is mild, doesn't that bring into question the notion that pensions are good way to set up for retirement? I feel for those already retired and drawing off a smallish pension or other investment scheme when these drops happen.

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

Whilst you are paying in monthly, drops like this are great news.  Investments are now much cheaper to buy. When it goes back up, it will be these that make more money than the months you bought the investments at higher prices.

In drawdown, the drops are less welcome but you know they are always coming. So, you build your investment and drawdown strategy to cater for them.  Such as having 3 years worth of income in cash and having income units that pay the income into that cash account.  So, in reality, you probably have end up with 5 years worth of cash without the need to sell any units.   Some people dont use cash within their pension but keep it external.  So, they can turn off their income (or reduce it) during negative periods and use the cash they hold externally.  Then when it goes back up, they can use the growth to replenish their cash.

Stashing money under the floor boards is clearly ill advised, but this frequent volatility in investments really has me questioning whether I have been doing the right thing by sacrificing so much of my monthly income.

Volatility is not this frequent.  You can break a  cycle into three parts.  You never know what bit is next or when you move between them but you typically have the good growth part of the cycle with little volatility.   Then you have the minor growth cycle with a bit more volatility but nothing major.   Then you have the very volatile part of the cycle.   For those paying in monthly, the best cycle for you is the highly volatile one.  Fill your boots whilst there is blood on street.

Or putting it another way, go back two years and in a strong growth year, would you have given this a second thought?  no.  You were happily buying investments at higher prices than today.   Investments are now much cheaper to buy and you are thinking about not buying them

It does get easier with each crash.   Your first one can be extremely worrying.   Your second one less so. By your third or fourth it becomes a bit "here we go again".

Very sound advice and thanks for taking the effort to reply. 👍👍