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Bond market nightmare wipes 38% off pension investment strategy

by LLB Reporter
6th Oct 22 10:51 am

The average annuity-hedging fund has fallen by 38% so far in 2022 …and has fallen by 5% since the mini-budget
This market holds £9 billion of pension savers’ assets.

Annuity rates have risen this year, but nowadays only 1 in 10 pension savers buys an annuity.

These ordinary pension savers aren’t in line for a bailout from the Bank of England.

Though the FCA is planning to introduce default funds in individual pensions which will be expected to include ‘lifestyling’ in the design.

Laith Khalaf, head of investment analysis at AJ Bell, comments: “Back in February we issued a note warning that older pension savers could be sleepwalking into a bond market nightmare, because of exposure to annuity-hedging funds. Unfortunately, that nightmare has now become a reality.

“The average annuity-hedging fund has fallen in value by 38% this year and has sunk by 5% in the short space of time since the mini-budget, thanks to the ensuing sell-off in UK gilts (data from Morningstar to 4th October 2022).

“These funds are typically provided by insurance companies and invest in long dated bonds to hedge investors against movements in annuity rates. Even after this year’s steep price falls, they still account for £9 billion of pension savers’ money.”

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