These are the Good Times for savers and investors!


Monkman knows


It is very rare that savers get told they’re “having it good”, but if you’re saving into a workplace pension default , you’ve just had a great 12 months.

I’m looking at a piece of paper that tells me that NEST returned over 21% on the 98% of contributions people saved into its accumulation funds (2040 as an example). The average return over two years is just over 12% , 12% over three and 11.5% over five years.

This at a time when returns on deposits and inflation have been in low single digits.

Even our occupational pension funds, which are running away from these equity returns, still prospered.  Lipper’s MoneyFacts says that the average UK pension fund returned 15.7% last year.

So when I read Helen Morrissey’s editor’s view in Professional Pensions this week entitled “we must commit to saving in good times and bad”, I was surprised by her pessimism

The last 12 months has undoubtedly been challenging and it will take some time for the full economic effects to play out..

The last 12 months have seen some of the highest market returns of the millennium so far, the BOE confirmed yesterday that Britain is the fastest growing economy in the OECD and upgraded yet again its estimated of GDP growth for 2017.

The boom is sadly being driven by consumer saving and not consumer spending (which was at a record low of 3% of household wealth last year). The problem is not with investments but with the lack of investing!

I agree with Helen that now is not the time to get into a funk about saving. Now may be a time to point out that if you’ve spent your last five years invested in a cash ISA, you have missed out on the majority of the 72.5% growth NEST has achieved since the inception of its funds in August 11th and equivalent returns from most workplace schemes (these returns are net of NEST’s 0.3% AMC).

Why are we so keen to remind ourselves of the financial crisis and so slow to consider the financial miracle that has occurred for many DC savers who were invested in equities over the last few years?

While I am ruminating on that question, I am also considering what the real returns for someone invested in bonds over the period might be. I don’t have the appropriate bond returns to hand (no doubt bond-maestro Keating will send me the right numbers), but here as a proxy is the M&G Corporate Bond fund.


not so good



I would be very surprised that pension funds, whether they were invested in bonds through the life styling of a DC default or through an LDI program (or similar) in a DB fund, will have produced anywhere near the equity default returns.

Reckless conservatism

I remember back in 2011, when NEST were laying out their investment philosophy, they were concerned about the likely volatility of equity returns in the years to come. That is why younger cohorts of NEST investors are invested more in bonds than equities (the thinking was that if they saw the investment volatility, they would opt-out, like live frogs from an overheated pot).

The reality is that ordinary savers have not been opting out because of investment returns. They have been oblivious to investment returns. Cash savers (pace Paul Lewis) have missed out on one of the great equity bonanzas of recent times, NEST bond savers have done alright (the Foundation phase isn’t looking bad – but not as good as those fully invested in equities).

If instead of firing money into Cash ISAs, ordinary people had fired money into NEST or any other low-cost equity based workplace pension default, they would be laughing. Tax free growth, ultra-low charges and access to the right markets through good governance.

Here all is in the diffidence that faltered.

Allied to the Foundation Phase approach at NEST, has been a group of investment consultants advising trustees to invest in a mixture of bonds, cash, equities and properties. These funds are called Diversified Growth Funds and they are supposed to produce more consistency than equities.


consistent underperformance.

DGF’s are a very expensive way of buying consistent returns. They are however considered a very safe bet for DC defaults and a lot of top employers get their members invested in them rather than equities (orange line against red line).


A good time for investors.

So what has been the result of all this hedging of bets, Paul and Martin Lewis promoting cash ISAs, Occupational Pension Funds loading up on bonds and DC trustees forcing people to pay for consistency using DGFs?

The result has been massive underperformance over the past five years.

Now is a good time for investors, we are in an equity bull run, the bond bull run is all but over and cash looks like a very bad place to be indeed. Yet we still talk down investing.

Despite the “glidepath to buy-out brigade”, the vast majority of DB investors have liabilities with a duration of 25+ years, the average DC investor has a life expectancy of 25+ years , the average persistency of the earliest round of PEPs (the ISA fore-runner) is now around 25 years!

Here all is in the not done, all in the diffidence that faltered. We should be investing in real assets over the long term, we have too much personal money squirrelled in cash, DC trustees are too conservative when they put DC defaults in DGFs and most occupational schemes are far too heavily invested in bonds.

As our FABI index suggests, life is a lot better when you put on a happy face!fabi-graph

I know what some compliance geek is going to write in and complain that there is no mention here that past performance is no guide to the future.

Well I’m 55 and I have a fantastic future ahead of me because I didn’t listen to compliance geeks in 2012 when I switched all my money into real assets. I practice what I preach, am prepared to see carnage in my investment from time and in the meantime I remind myself of this dictum.


In the end – we rely on our entrepreneurial capacity to produce and sell things. There is no substitute for hard work and a productive economy. Putting your money under the mattress won’t help any, not picking up the phone and making a sale won’t help any.

As with work, so with saving – you have to take risks,  invest and accumulate.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to These are the Good Times for savers and investors!

  1. Con Keating says:

    How did bonds perform – all over the place is the answer – short gilts (out to 5 years) basically returned nothing. All conventionals + approximately 11% – but take away the 25 basis point in yield year-end short squeeze and that drops to low single digit. The star performer (also squeezed at year-end) was ILG which returned around 25%
    The real issue is rather less these assets held and rather more derivatives exposures but we won’t see those until the ONS release of MQ5 in March – my estimate is that they will have increased by approximately £60 billion to around £360 billion.

  2. Pride comes before a fall!
    But you are mostly right. As one who remembers ‘Balanced Management’, ‘With Profits’ and ‘Managed Funds’, I had little confidence in Diversified Growth Funds, especially just after a crash (circa 2009). They were (re)invented to satisfy a perceived demand for something less volatile than just equities for the growth phase, and disenchantment with the largely discredited managed funds and with profits products (where many legacy plans still languish suffering high charges and scant oversight). Who could resist the appealing strapline of ‘equity like returns with less volatility’?However, this comes with massive regret risk depending on your point of switch, if your advisers have reviewed your DC Plan in the aftermath of an equity crash. Unfortunately consultants want to sell change and Trustees are often too impatient or short sighted to realise when they are being sold a solution to a problem that is artificial – equity markets are regularly over bought or over sold – it’s the dividends that bring the value in the long run! The reality is that the vast majority of pension investors these days routinely accept volatility, and as regular investors buy the lows and highs, pound cost averaging etc. Yes a crash or correction might (will) happen, but the average youngster that can’t access their retirement funds for years (in my experience) just gets on with life and by the time they receive a statement invariably there’s been a bounce in the markets. In any event, headline capital only indexes are not relevant – always use the dividend reinvested indexes (total return).

    Here endeth the lesson. 😃

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