The defined contribution (DC) pension savings of younger master trust members rose by an average of 15 per cent during Q2, recovering most of the losses seen in the previous quarter, according to new analysis by Isio.

The company’s Q2 DC default review, After the Storm, analysed the performance of a selection of the leading master trusts default strategies, revealing that younger members (around 30 years from retirement) benefited most from the recent market boost, with pot sizes increasing between 10.5 per cent to 19.9 per cent over Q2.

Late-career members (with two years until retirement) had also recovered much of their Q1 losses, with an average return over 9 per cent, and longer-term returns averaging 4.3 per cent per annum.

According to the report, equity-driven strategies had the best performance over the period, particularly those with lower UK equity allocations, as overseas markets had recovered “the majority” of their Q1 losses.

Isio explained that, given the pensions of early-career members tend to be more exposed to higher risk assets such as equities, this recovery has had a particularly positive impact on the savings of younger people.

It also emphasised the impact of automatic de-risking in lifestyle and target dated funds in helping preserve capital for older members, whilst still generating positive absolute returns.

Isio added that whilst diversified strategies did not fare “quite as well” given the equity-led rally, it still delivered strong double-gilt returns.

Similarly, it clarified that whilst more defensive strategies with higher gilt and cash allegations "lagged" riskier growth strategies, they had still delivering positive returns.

Isio partner, George Fowler, stated: “It is about time we had some good news, so it is great to see pension pots recovering following the dismal first quarter.

"The data is particularly good news for younger people who have seen some great returns of up to 20 per cent.

“While the forecast for the rest of the year remains uncertain, our latest report shows the wisdom of a long-term view.

"Short-term stresses such as the continued impact of the pandemic with the threat of a second spike, the end of the furlough scheme in the UK and the forthcoming US elections all have the potential to disrupt the pension savings of UK workers.

"However, we have already seen how a calm and long-term approach, can help pensioners weather the storm."

He added: “Staying mindful of where members are in their pension journey remains key. Whilst younger members may be able to ride out the threat of another storm ahead, older investors with one eye on retirement should make sure they steer a safer course.”

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