Pension Review: Performance – Thumbs Up or Thumbs Down?

Pension Review: Performance - Thumbs Up or Thumbs Down?

Following on from our previous article Pension Review: Guaranteed Annuity Rates (GARs) one of the most fundamental reasons to review a pension is the underlying investment. In doing so there are two aspects which we address: asset allocation and performance.

With regard to asset allocation, it is crucial to determine whether the assets in which a client’s monies are invested and the corresponding risk are suitable to their needs. Given our 20 years experience as IFAs, it is no longer a surprise when a client is unaware of where their funds are invested and in what assets. This may be due to client apathy or alternatively default investment solutions, i.e. pre-determined approaches chosen at outset. Whatever the reason, asset allocation or underlying investment risk may no longer be appropriate.

Performance though is perhaps the most important factor in the success or otherwise of a client’s pension / retirement planning. Often clients adopt a laissez-faire attitude towards their pensions because they perceive their fund growing in value to be ‘doing well’, when in reality this may not be the case.

Let us take a simple look at some of the most popular sectors as far as funds are concerned. Below is a table of the value of £1,000 invested showing the best fund, the sector average and the worst fund return over the respective time periods.

 

1 year

3 years 5 years

10 years

Mixed Investment 40% to 85% Shares (formerly known as Balanced Managed)

Best

£1,114 £1,434 £1,614 £2,533

Sector Average

£1,058 £1,280 £1,433

£2,069

Worst £538 £693 £793

£1,245

UK All Companies

Best

£1,175 £1,485 £1,968 £4,044

Sector Average

£1,080 £1,253 £1,417

£2,142

Worst £981 £1,059 £1,199

£1,564

Global Equities

Best

£1,217 £1,843 £2,410 £3,400

Sector Average

£1,093 £1,452 £1,673

£2,507

Worst £985 £1,195 £1,315

£1,591

Source: Financial Express @ 1st August 2018

As you can see there is a significant disparity between even the best performing fund and the sector average. Of course no one fund will be the best over all time periods. However, it is quite clear if you scale these figures up from £1,000 to the value accumulated within your actual pension funds, the difference and improvement can be truly staggering. Indeed, it can be the difference between a comfortable retirement and an enjoyable one. Or being able to retire early versus having to continue working well beyond when you would prefer.

Feel free to contact us for an appraisal to ensure your pension fund is working as a hard as you.