Isio Reward and Benefits Blog Still on course for retirement?

1 Isio Reward and Benefits Blog Still on course for retirement? April 2022. Review of DC investment strategies over Q1 2022. After several quarters of rising markets, the start of 2022. saw investors navigating tricky headwinds in response to Russia's invasion of Ukraine and inflationary pressures. Don't jump overboard yet and Unlike Q1 2020, when the impact of the pandemic caused remember our 3 Ds approach to a much sharper equity sell-off and flight to safe haven . DC investing assets, 2022 saw bonds also suffer in the market sell-off as concerns around rising rates unsettled investors. This created a challenging environment for both diversified and more equity-heavy strategies alike, and members close to Don't panic retirement (who typically have a higher weighting to bonds).

2 In the growth phase were more severely impacted. Despite choppy waters initially, markets settled towards the end of Q1 with global equities in particular recovering most of their losses. It is also important to note that most asset Diversify appropriately classes have delivered very strong returns over the past few In the retirement phase years, with equities returning in the 3 years to 31. December 2021. This should mean most DC pots have grown when taking a longer term view, particularly for members in the growth phase. Dynamism . Where it matters In this paper we explore the questions at the forefront of DC members' minds: How have the headwinds of 2022 impacted Note: 1 MSCI World sterling terms ( no currency hedging).

3 Source: Refinitv. members in the growth and at-retirement phases? Which Providers breezed through choppy waters and who had a more turbulent journey? Should members be making any immediate changes to their DC investments in light of the stormy seas? Document classification: Public 1. From choppy waters to calmer seas The seas at the start of 2022. were difficult to navigate for members in both the growth and at-retirement phase . Returns in Q1 2022 by asset class Market commentary Markets made waves at the start of 2022 in response to geopolitical tension and inflation concerns. Despite recovering some losses in March, most equities were down at the end of Q1, with the UK an exception to this. European equities were most impacted due to their proximity to Ukraine / Russia.

4 We normally see bonds perform well in falling equity markets as investors abandon ship in favour of calmer UK. waters, however, inflation concerns UK Equity global Equity European US Equity EM Equity Investment Long Fixed- Long Index- and increasing interest rates resulted Equity Grade Credit Interest Gilts Linked Gilts in bonds performing even worse than Return equities. Cumulative returns in Q1 2022 for example growth and Isio Group Limited/Isio Services Limited 2021. All rights reserved D. growth phase . at-retirement portfolios Members in the growth phase will have likely seen drawdowns and 5%. increased volatility during Q1. Investors that sat tight and didn't drop anchor to de-risk would have seen their pension pots recover to 0%.

5 Some degree by the end of Q1 as equities regained some of their losses. Investors that panicked and de-risked at the wrong time may have been left high and dry. -5%. Diversified strategies are unlikely to have offered much protection, and may have performed worse than equity driven strategies, as bonds fell -10%. Jan 22 Feb 22 Mar 22. further by the end of the quarter. Example growth Phase portfolio Example At-Retirement Phase portfolio Note: Example growth phase portfolio composed of: 80% global Equities (FTSE World ( ) Index) and 20% Corporate Bonds (FTSE Non-Gilts (All Maturities) Index). Example at-retirement phase portfolio composed of: 25% global Equities (FTSE World ( ) Index), 25% Corporate Bonds (FTSE Non-Gilts (All Maturities) Index), 25% Index-Linked Gilts (FTSE ILG (All Maturities).)

6 At-retirement phase Index) and 25% Cash (SONIA). Assumes no rebalancing. Gross of fees. Equity returns shown in sterling terms ( no currency hedging). Despite experiencing lower volatility, Source: Isio Group Limited/Isio Refinitv. Services Limited 2021. All rights reserved members in the at-retirement phase found themselves in deeper water as their strategy is more likely to have higher exposure to bonds which struggled in the rising inflationary environment. More defensive strategies with higher corporate bond and gilt allocations are likely to have underperformed at-retirement strategies with a higher allocation to equities. Document classification: Public 2. Impact on members Decreasing equity exposure Default growth phase performance to 31 March 2022.

7 growth phase . 20%. All Providers assessed produced negative returns as stormy seas proved (30 years to retirement). 15%. tricky to navigate, however losses were recovered to some extent as equities growth phase partially improved over March. 10%. More diversified growth strategies failed to offer members much protection in 5%. a quarter where both equity and bond markets fell. 0%. Despite a quarter of negative returns, members in the growth phase should -5%. stay calm and remember that they're National Aon LifeSight Aegon Fidelity Scottish Smart Standard Aviva L&G Mercer invested for the long-term. Looking over Pensions Widows Pensions Life Trust the 12 month period, returns remain strong despite Q1's volatility. Q1 2022 12 months to 31 March 2022.

8 Isio Group Limited/Isio Services Limited 2021. All rights reserved Decreasing equity exposure Default at-retirement phase performance to 31 March 2022. At-retirement phase . 10%. 10% Members approaching retirement 8% (0 years to retirement). would typically expect more protection 8% At-retirement phase 6% in falling equity markets due to their 6% more diversified approach and greater 4% 4% exposure to bonds. However rising rates 2%. presented a challenging backdrop for 2% bonds and at-retirement strategies 0%. 0%. tended to underperform returns in the -2% growth phase. -2% -4% -4% This is concerning for members who -6% -6%. wish to retire soon and have a shorter National National Aon Aegon Standard Smart Scottish LifeSight Mercer Fidelity L&G Aviva Pensions Aon Aegon Standard Smart Scottish LifeSight Mercer Fidelity Life Pensions Widows L&G Aviva time horizon than members in the Pensions Trust Life Pensions Widows Trust growth phase.

9 With few DC members Q1 2022. Q1 2022. 12 months to 31 March 2022. 12 months to 31 March 2022. buying annuities at retirement (and most defaults targeting flexible retirement or wealth preservation outcomes), members may need to Note: Returns shown for some Providers are unaudited returns due to the close proximity to quarter end when first reporting the numbers above. re-evaluate their pension plans given Source: Providers. many strategies failed to keep pace Isio Group Limited/Isio Services Limited 2021. All rights reserved Isio Group Limited/Isio Services Limited 2021. All rights reserved Docum with inflation. This could result in members needing to explore delaying retirement, adding additional contributions, or even assessing if their strategy remains suitable based on their individual circumstances.

10 Document classification: Public 3. Don't jump overboard yet and remember our 3 Ds approach to DC investing . Don't jump overboard yet The start of 2022 proved difficult to navigate, as investors had to sail through strong headwinds of increased geopolitical uncertainty and rising inflationary pressures. This challenging environment was particularly difficult for bonds, which had a greater impact on members approaching retirement. Our analysis has shown that most providers have failed to provide adequate protection against rising inflation for members in the later stages of their savings journey, which will likely have a meaningful impact on their income at retirement. Don't panic Whilst markets in Q1 were The forecast for 2022 continues to look choppy, with inflationary difficult to navigate, sit tight and don't make any pressures, rising rates, and geopolitical tensions expected knee jerk reactions.