Pension fund returns hit five-year low

LONDON (Reuters) - Returns on pension savings hit a five-year low last year, research shows.

The average pension fund posted growth of just 5.41 percent during 2007 -- the poorest performance since 2002 when the bear market led to average losses of 15.2 percent, according to Investment Life & Pensions Moneyfacts.

The latest figure is down on the 9.17 percent rise notched up in 2006 and a far cry from growth of 19.9 percent witnessed during 2005.

In some cases, pension funds posted losses on contributions made during 2007.

Property was the worst-performing pension fund sector during the year, recording an average loss of 13.6 percent during 2007 compared to profits of 19.2 percent the previous year.

Pension savers who invested in Japan, the UK smaller companies and UK equity income sectors also suffered losses -- of 11.4 percent, 5.6 percent and 0.3 percent respectively.

For them, holding the money in cash would have borne more fruit.

The average savings notice account gave a gross return of 3.8 percent during the year, based on a sum of 1,000 pounds, and almost half -- 13 out of 27 -- of the Association of British Insurers’ pension sectors delivered lower returns than cash.

Some sectors, however, delivered better performance.

Unlike the UK, Asia has remained relatively unscathed by the global credit crunch.

China, in particular, delivered impressive investment returns last year, with the Far East excluding Japan sector proving the biggest success story of the last 12 months for pension investors -- yielding an average 36.8 percent.

The global emerging markets and Far East including Japan sectors made up the top three performers, posting growth of 35.6 percent and 16.3 percent respectively.

“After enjoying four successive years of strong investment returns, most pension holders will have seen only modest gains to their policies during 2007,” said Richard Eagling, editor of Investment Life & Pensions Moneyfacts.

“Only those pension savers who hold more aggressive funds investing in the Far East and global emerging markets will look back at the last 12 months with any real sense of achievement.”

The research is based on figures from Lipper Hindsight and charts gross total returns in the 12 months to January 1 2008. They do not take account of initial charges.