Royal London's independent governance committee (IGC) has downgraded its rating for appropriate investment returns after all default funds caused a fall in pot values.
The provider's contract-based scheme saw investment underperformance compared to benchmarks in its three accumulation portfolios over the course of 2018, the IGC's annual report said.
Savers with over 15 years left before retirement (GP4) saw investment returns of -4.99%, 59 basis points (bps) under the benchmark.
This fell to -4.29% for savers between 10 and five years away from retirement (GP5), 47bps under the benchmark; and -2.84% for those within five years of retirement (GP6), 25bps under the benchmark. For savers in decumulation (GRIP3), performance was recorded at -2.86%, 2bps above the benchmark.
Blaming a "tough time in 2018" for both UK and US stock markets, Royal London moved its ‘appropriate investment returns' marker from a green rating to an amber rating.
In the annual report, the IGC said it was "disappointed" that it had underperformed benchmarks, adding: "Markets had a tough time in 2018 and both the UK and US stock markets suffered their biggest losses since the financial crash in 2008."
It blamed the underperformance on being overweight in equities when markets "suffered their worst drops in December", with this then compounded by poor performance in European equities. However, this was partially offset by good performance in property and fixed interest funds.
IGC chairman Peter Dorward said: "It was a turbulent year for investment markets which affected the investment performance for the portfolios that the majority of workplace customers invest in.
"Although we recognise pensions are a long-term investment and can be affected by short term fluctuations, we will be monitoring investment performance closely in the coming year to ensure Royal London's investment strategy continues to deliver appropriate returns."
The IGC retained its green ratings for both ‘balanced charging' and ‘appropriate ongoing charges', with transaction costs remaining broadly the same as in 2017.
The figures take into account charges arising from commission, tax, legal fees, stock lending fees, implicit costs, and other sources - with all information requested as the IGC saw "appropriate", and the report "goes beyond" that required by the Financial Conduct Authority's (FCA) methodology.
Where £30,000 was invested in GP4, transaction costs amounted to 0.152%, compared to 0.155% last year; for GP5, costs moved from 0.081% to 0.085%.
Meanwhile, GP6 saw an increase in costs, although these remained negative, rising from -0.048% to -0.026%.
Both the performance and charge figures only applied, as described above, where they are invested as part of Royal London's Balanced Lifestyle Strategy (Target Drawdown), the default.
Across its seven reporting areas - including fair exit charges and effective service - the IGC reported five green ratings and two amber ratings, with clear communication improving from amber to green.
The IGC said a number of changes had been made by Royal London over the year to improve how it managed pension accounts and communicated with customers, including revamping its annual statement to members, and the introduction of a mobile application.
Dorward added: "Royal London has delivered on the promises it made to us. In particular the work done on workplace customer communications has been a significant step forward.
"However, customer expectations move on as does our, and Royal London's, understanding of what customers value and should rightly expect from their provider.
"Responsible investment and how Royal London responds to the needs of customers in vulnerable circumstances will need further attention in the year ahead."
Royal London is the first of a number of IGCs to publish the annual document for 2018.
It is expected that further information will be required in future reports as the FCA consults on further disclosure of costs and charges, with another consultation on environmental, social and governance reporting expected later this year.
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