Millions of pounds in retirement savings are at risk as bond market volatility continues to threaten pensioners‘ nest eggs, Britons are being warned.
Savers approaching retirement could see their pension pots devastated by ongoing turmoil in the bond markets, with yields on Government bonds climbing again in Friday trading.
The yield on 10-year gilts rose to 4.85 per cent in early trading, while 30-year gilt yields reached 5.41 per cent, reaching levels not seen since 1998. A typical pension saver could be £90,000 worse off if their investments are moved out of the stock market and into bonds, according to the investigation.
One 59-year-old saver has already lost a third of his £330,000 retirement pot after his pension was moved into supposedly safer investments. Adam Daniels, a City of London professional with decades of experience, saw £100,000 vanish from his £330,000 pension pot due to bond market turbulence.
The dramatic loss occurred during the bond market chaos following the September 2022 mini-Budget, as rising interest rates and falling bond prices hit retirement savings.
“I’m lucky and this hasn’t changed my retirement plan, but I’ll never be able to save that [money] again and I have lost the compounding interest effect,” Daniels told The Telegraph. He warned that for many savers, such losses would be “life-changing”.
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Millions of pounds in pension savings are at risk due to market volatility, experts claim
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Despite his careful approach to pension saving throughout his career, which included generous employer contributions, Daniels watched a third of one of his retirement pots disappear “in the blink of an eye”.
The losses highlight growing concerns about “lifestyling”, a common pension investment strategy where savings are gradually moved from stocks to bonds as retirement approaches. This traditional approach assumes bonds are lower risk investments suitable for those nearing retirement.
However, recent market volatility has undermined this logic, leaving many savers exposed to significant losses. The strategy has proved particularly damaging for workers in their 50s and 60s who are approaching retirement and whose workplace pension “default” funds typically use this approach.
These automatic investment shifts have left many retirement pots vulnerable to the ongoing bond market turmoil, which began in 2021 and continues to impact savers.
Gilt yields continued to surge earlier this week in another blow to Rachel Reeves
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A former pensions minister described it as “astonishing” that companies had failed to act on these risks. The latest market data shows continued volatility in Government bonds, with yields climbing as markets opened on Friday.
Both 10-year and 30-year gilts saw increases of more than three basis points compared to Thursday’s closing prices. While both gilt categories eased slightly after early trading, they remained elevated by several basis points.
The rising gilt yields have triggered an inverse effect on government bond prices, which have fallen in recent days. This decline has led to increased borrowing costs across the market.
The pound has also felt the impact of the market turbulence, dropping 0.1 per cent against the dollar to reach 1.229 on Friday morning. Daniels has decided to move his pensions into a self-invested personal pension (Sipp) to manage investments himself following his losses.
He believes the financial services industry should have done more to protect workers’ life savings. “They got away with it scot-free. The mini-Budget doesn’t mean every organisation has an excuse to say, the market went crazy, there’s nothing we can do,” Daniels said.
“The job of a pension company is, at the very least, not to lose savers’ money. Anyone over the age of 35 should have realised these low interest rates couldn’t last forever and should have had a plan for when they started moving to protect savers.”
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He criticised pension administrators and trustees for “blindly” following strategies that “destroy their members’ pension pots.” The impact of bond market volatility on retirement savings continues to raise serious concerns across the pension industry.
Telegraph Money’s investigation revealed that a typical pension saver could lose £90,000 if their investments are moved from stocks to bonds at the wrong time.
The investigation found that millions of pensions remain at risk of losing money when savers need it most.
Many retirement pots are still being automatically moved into “unsuitable” lifestyle investments by providers, despite repeated warnings about the risks of bond market chaos.