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The impact of key market events in the pandemic on retirement savings

Article provided by Liberty

The volatility seen in financial markets due to COVID-19, and other major events surrounding the pandemic, had some level of impact on retirement savings. However, the impact on most retirement savings was not as severe as that experienced by equity markets during 2020, since many retirement investment strategies contain a diversified blend of asset classes and not just equities alone.

This can be seen in Liberty Corporate’s Core Portfolios which consistently performed better than similar portfolios due to how they are structured and managed. Over the calendar year of 2020, the Liberty Core Portfolios returned between 9.6% and 12.9% (before fees). This means that members that remained invested in these portfolios during the year would have experienced an overall increase in their accumulated retirement savings, and well above the inflation rate.

The key market events of 2020 negatively impacted two levers which affect people’s ability to retire comfortably.

  • The short-term performance of investment portfolios: The Liberty Core Portfolios’ short-term investment performance was lower than expected. However, it is important to note that the Liberty Core Portfolios have a long-term investment return target, and volatility over short periods is expected.
  • The level of retirement contributions saved: The average value of retirement contributions decreased which is likely due to affordability constraints resulting in temporarily reduced or suspended retirement contributions to alleviate the financial strain caused by the lockdown regulations.

The effect of these two levers resulted in average projected accumulated retirement savings, and hence projected retirement income, decreasing. This means that retirement members were expected to have less income in retirement and were less likely to retire comfortably.

The Liberty Core Portfolios underpin the Retirement Goals-Based Strategy which can be used to improve members’ retirement income. This is done by using a goals-based framework that helps target retirement income goals specific to each member’s investment needs. If members follow the recommendations from the goals-based framework, they have the ability to increase their projected retirement income and therefore their ability to retire comfortably. The Retirement Goals-Based Strategy, with the help of the goals-based framework and the Liberty Core Portfolios, can be used to help members reverse negative effects of the COVID-19 pandemic and other market events on their retirement savings, and increase their ability to retire comfortably.

The last 12 months have been a difficult year for many, and we understand that we are living in an unprecedented time. We would like to commend investors for remaining invested during this period, as we journey with them to help them meet their retirement goals.

Liberty is a proud Partner of the NSBC