The news isn’t as bleak as it might seem, however. Returns were slightly positive in all of 2011's quarters with the exception of the third, which saw funds losing 4.8 per cent. The most recent negative year was in 2008 amidst the financial crisis, which has been followed by two years of positive double-digit returns.
Over the three-year period to 31 December 2011 funds achieved an estimated weighted average return of 8.4 per cent per annum. This represents a real rate of return of 5.1 per cent per annum when measured against the retail prices index (RPI) and 6.7 per cent a year when compared with the average weekly earnings index.
According to BNY Mellon, over the last five years the estimated weighted average return for pension funds was 3.2 per cent per annum, which was slightly behind RPI, but ahead of the average weekly earnings index by 0.8 per cent per annum. The average UK pension fund also achieved real returns over a 10-year period of 2.2 per cent, with funds achieving an estimated return of 5.4 per cent per annum over the last decade.
Equity markets around the world were negative last year.
Performance of indices over 1-yr
Source: FE Analytics
Our data shows UK, Europe and emerging markets indices all losing money in the 12 months to the start of January. US equities, UK bonds and UK Index Linked-Gilts saw the strongest returns for the period.
"2011 was a very volatile year for assets of pension funds, and although returns were only slightly negative for the year as a whole, higher inflation and lower long-term interest rates will have added to pension scheme liabilities," said Alan Wilcock, performance and risk analytics manager at BNY Mellon Asset Servicing.