Is your pension fund a poor performer?
The performance of your pension fund is crucial to realising your retirement dreams, but some pension funds are not living up to their side of the bargain.
New research from Hargreaves Lansdown says that £55 billion of pension funds have not delivered the investment returns they should. These ‘Old Bangers’ have guzzled huge sums in pension contributions without giving much mileage in return.
Keep an eye on your pension
The effects of pension underperformance are simple - investors have to invest more money, retire later or, most likely, retire with a smaller income. This has a very real effect on your quality of life in retirement. It could mean foregoing the annual holiday, spending less on the grandchildren, and generally scrimping and saving when you should be enjoying the fruits of your labour.
If you have contributed to a pension you should be congratulated for investing for your future, but you must still continue to review your pension funds to make sure they are giving you good value for the management fees you are paying.
Underperforming funds
Take for instance the Canada Life UK Equity fund, which has returned just 36.7% over 10 years. That compares with the 109.8% returned by the FTSE All Share Index. Similarly, the mammoth £2 billion Abbey Life Equity fund has returned 55% over 10 years, just over half the return on the un-managed FTSE All Share Index.
The list goes on and includes funds run by Barclays, Clerical Medical, Friends Provident, Prudential, Scottish Equitable, and Winterthur.
Like any savings vehicle your pension needs a routine check-up and service, and sometimes you will have to switch models. The ‘Old Bangers’ may have been top of the range in their day, but then so was the Model T Ford when it rolled off the production lines in 1908.
Why you should shop around
The range of funds available to pension investors has moved on in leaps and bounds in the last ten years. If you hold an ‘Old Banger’ it’s likely that your pension provider now runs a much larger suite of funds, and those that are still open to new investment are likely to be treated as more of a priority.
Not only that, but most pension providers now offer funds run by fund management groups such as Invesco Perpetual, Jupiter and New Star that let you tap into some of the best investment brains in the city.
Or if you want to take control of your pension you could consider transferring to a low cost SIPP (Self Invested Personal Pension), which gives you access to an even bigger range of these market-leading investment funds.
By Tom McPhail - Hargreaves Lansdown
July 2007
