Will recent "events" cause a rethink of DC pensions?

Albermarle

leosayer said:

I retired 3 months ago and plan to start drawing from my 75/25 SIPP in a few months.

The recent drops are well within my expectation of normal market volatility. In fact, I made the decision to retire just over a year ago when equity markets were roughly at the same level they are now.

Of course I don't like the recent losses but that's the whole reason for holding bonds which have done what they're supposed to do. 

I have no trouble sleeping which tells me that my 75/25 allocation is probably about right for me.

That is true to a large extent, but in the financial press there is some anxiety that although US Treasuries initially were a safe haven, they are now being aggressively sold and prices are reducing. The thinking is that leveraged investors are selling anything to get cash to pay margin calls etc . So both stock and bond markets are in negative territory at the same time, which is not good.
This is now starting to affect gilts as well.

Linton

After 20 years retirement our overall pension savings are about 60% equity 20% bonds and 20% cash (mainly PBs).

65% of the equities are in a long term 100% equity growth portfolio that should not need to be  touched beyond a small amount of rebalancing for at least 10 years.

All on-going expenditure is covered by an equity and bond income portfolio plus SPs, annuities, and a small amount of DB pension.  The cash holdings are available for one-offs such as foreign holidays and house maintenance and are replenished by unused income.

Keeping long term growth equity and short term cash/low-risk  in separate buckets ensures that equity volatility can be largely ignored.

hilsea

Yes a lot of unease across the pond in the bond market. The 30 year treasury hit 5 % this morning.. with this in the USA it’s now spreading to Europe . I’m wondering if china is withdrawing cash from the USA treasury market. So people saying bonds are doing what they are meant to do might be a bit premature. The bonds didn’t really help when we had the pandemic. I’m more concerned about the money market funds, we tend to look at these as holding cash however in these strange times I do worry that these could suddenly become more riskier than than key investor documents indicate .

Hoenir

hilsea said:

 I’m wondering if china is withdrawing cash from the USA treasury market.

China was a net seller of US Treasuries in 2024. Suspect the Chinese were already preparing for what might come. The game started well before Trump's theatrical Rose Garden pronouncement. The real war is yet unseen. 

Linton

hilsea said:

Yes a lot of unease across the pond in the bond market. The 30 year treasury hit 5 % this morning.. with this in the USA it’s now spreading to Europe . I’m wondering if china is withdrawing cash from the USA treasury market. So people saying bonds are doing what they are meant to do might be a bit premature. The bonds didn’t really help when we had the pandemic. I’m more concerned about the money market funds, we tend to look at these as holding cash however in these strange times I do worry that these could suddenly become more riskier than than key investor documents indicate .

I understand from YouTube that both China and Japan are significantly reducing their holdings of US treasuries and buying gold. Chinese and Japan's own bonds have much lower yields than US treasuries. I dont know whether there is some non-obvious reason why that shiould be so.

But, barring the collapse of the $, short term $ bonds and MM funds should not be seriously affected.

crv1963

Universidad said:

Bostonerimus1 said:

It might be a good time to research Japan's lost decade. We might not be just looking at market volatility, we might be looking at years of low growth and poor returns. 

My big fear is that when, inevitably, the separation between those who managed to hold on to a good DB pension and those with tiny DC pensions becomes too great, the government will take some popular action to harmonise things.

This is not borne so much out of concern for future investments as the fact that so few people have decent amounts going in to their DC pensions... But a decade of terrible performance wouldn't help. 

I also have given this some thought, as my DB pension underpins our retirement plans. Especially as nowadays few if any private sector employers offer DB pensions, so no doubt the press will be howling at the unfairness of public sector pension schemes, more divide and rule?

In reality DC pensions need a higher savings rate, but given the financial position of a lot of people compelling extra % contributions into a market that is falling or stagnant would not be a choice most politicians would go down.

We have been saving hard into my wife's SIPP and are simply planning on not accessing it until we have to.

Nebulous2

Some of the clickbait press constantly reference gold-plated DB pensions. They pick their moments for it. We don't hear that so much when the stockmarket has gained 20% in a year. 

While there are considerable differences between the two types, including transferring risk from the employer to the employee, what I believe is the biggest difference, for funded schemes, is the amount of money committed. 

Lots of people are on the minimum 8% into DC pensions, 5% personal / 3% employer. Many public sector workers are paying more than that themselves, with the employer paying considerably more. 

SpeedSouth

I've still 10+ years to retirement, but it has made me think about expectations when I get there.

I've only be doing pensions seriously for last 10 years.  In that time 2020 I saw a drop. Whilst a large % was only £30k at the time.

Fast forward to now and combined the SIPPs and workplace are probably 130k ish down.

Beginning of the year riding high my fear was my pension would be too big and I couldn't access it early enough and didn't have enough in the bridge pot.  So took the decision to wind contributions back and focus on ISAs.

Having seen the amounts wiped off as quickly as they have been will mean more reading when I get closer to taking the retirement decision.

I'll leave it in 100% equities for now.

Lowtrawler

I'm in the runup period to retirement and thankfully de-risked over the last 6 months by setting up a bond ladder to sit alongside my DB pensions. It means I have secure inflation linked income from my expected retirement date that will meet all our day-to-day expenditure. I am trying to build up around £300k of funding for non-routine costs - cars, home maintenance etc. and so have taken a small hit over the last week.

I do worry about the generations to come who will be entirely dependent on DC pensions and who have never been properly educated on the payments they need to be making into those schemes. Unless people get lucky with investment returns, most will not have sufficient pension income.

Bostonerimus1

Linton said:

hilsea said:

Yes a lot of unease across the pond in the bond market. The 30 year treasury hit 5 % this morning.. with this in the USA it’s now spreading to Europe . I’m wondering if china is withdrawing cash from the USA treasury market. So people saying bonds are doing what they are meant to do might be a bit premature. The bonds didn’t really help when we had the pandemic. I’m more concerned about the money market funds, we tend to look at these as holding cash however in these strange times I do worry that these could suddenly become more riskier than than key investor documents indicate .

I understand from YouTube that both China and Japan are significantly reducing their holdings of US treasuries and buying gold. Chinese and Japan's own bonds have much lower yields than US treasuries. I dont know whether there is some non-obvious reason why that shiould be so.

But, barring the collapse of the $, short term $ bonds and MM funds should not be seriously affected.

It looks like the bond markets are starting to get involved in all this with rates on an upward trajectory. So expect bond prices to fall. I imagine some of the selloff in US bonds will simply be because of a reduction in confidence in the US. The scary thing is that all this might have broken the bubble of the US T-bill as being the default safe harbour and once that is lost it's hard to get it back.