Pensions - are everyone's losing money or just mine

Pensions - are everyone's losing money or just mine

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Discussion

kingston12

Original Poster:

5,473 posts

156 months

Sunday 25th September 2016
quotequote all
I have decided to do something about my various pension pots that I have scattered about from previous jobs.

None of them are worth very much, but I have noticed that they each tend to make a fairly significant 'investment loss' each year. They are all invested in what the various providers describe as medium risk funds.

Is this happening to everyone else, or are pensions just a bit like other financial products where if you don't update your 'deal' every few years they start penalising you?

Mattt

16,661 posts

217 months

Sunday 25th September 2016
quotequote all
Each year or just after the last year?

You can consolidate but there may be charges involved.

kingston12

Original Poster:

5,473 posts

156 months

Sunday 25th September 2016
quotequote all
Mattt said:
Each year or just after the last year?

You can consolidate but there may be charges involved.
The one that prompted me to make the post lost 5% this year (to May 2016) and about 2% the year before.

If the markets have been THAT bad over those periods then I guess I could live with it. I didn't think they had been, but I'm certainly no expert!

It just seems that the money I have got in current and savings accounts is constantly making more than my pensions, and even that is very low.

Simpo Two

85,149 posts

264 months

Sunday 25th September 2016
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I'm no expert but my first thoughts are poor fund choice (are they 'managed'?) and/or high charges which can undo any modest growth. Note that the period over which the gain/loss is calculated can make things look better/worse than they really are. My pension fund has done OK - the only rub being that I can't take it all out and stick it on Gay Donkey in the 3.30 at Epsom.

Julian P-H knows pension people, perhaps he will pop in with some ideas.

Ozzie Osmond

21,189 posts

245 months

Sunday 25th September 2016
quotequote all
My personal view - consolidate into one pension pot so everything is much easier to see, understand and manage. (Unless you've got anything with or like a guaranteed rate of return, which should probably be left alone.)

It's highly likely your funds have risen 10% since May. Do you know the number of units you hold and in which funds? If so it's very easy to go online to look at the current price and do yourself an instant valuation.

Ginge R

4,761 posts

218 months

Sunday 25th September 2016
quotequote all
kingston12 said:
I have decided to do something about my various pension pots that I have scattered about from previous jobs.

None of them are worth very much, but I have noticed that they each tend to make a fairly significant 'investment loss' each year. They are all invested in what the various providers describe as medium risk funds.

Is this happening to everyone else, or are pensions just a bit like other financial products where if you don't update your 'deal' every few years they start penalising you?
Without knowing the detail it's impossible to say why, but if you have a number, all in medium risk funds and all consistently losing money, I'd be surprised. There are many archaic, inappropriately advised, too expensive and needlessly sophisticated pensions out there, when *most* people simply need simplicity, efficiency and cheapness.

I don't agree completely with the premise of your final point, but putting them all together does usually mean you become eligible for cheaper management costs. Should you surf pensions? Why not, as long as the procedure doesn't disadvantage you, is appropriate for what you might need and doesn't lose you money.

JulianPH

9,912 posts

113 months

Sunday 25th September 2016
quotequote all
Simpo Two said:
I'm no expert but my first thoughts are poor fund choice (are they 'managed'?) and/or high charges which can undo any modest growth. Note that the period over which the gain/loss is calculated can make things look better/worse than they really are. My pension fund has done OK - the only rub being that I can't take it all out and stick it on Gay Donkey in the 3.30 at Epsom.

Julian P-H knows pension people, perhaps he will pop in with some ideas.
Hi John, I'll try and help the OP...

John is right, it is investment choice and charges that determine the overall returns from a pension.

This is quite simplistic but, the FTSE was down c. 10% over the one year period to May 2016 so a FTSE Tracker would have fallen by twice as much as your pension (then add charges). As your pension has only fallen by half this amount it would indicate some good diversity that has protected you from half of this fall (after charges, too).

Taking a snap-shot over short periods is often not helpful, these are long term investments (by the way the FTSE has virtually recovered since May so much of your loss should have too).

Consolidating various smaller schemes into one pot is often a good idea as you can see everything in one place. Have a look at something like YouInvest from AJ Bell. You can move all your pensions over for free and then pick a selection of low cost Exchange Traded Funds to build a portfolio you are happy with, or select an fully managed investment option (I would recommend one that uses passive investments to reduce costs) or ask an adviser to make a recommendation for you for a fixed fee.

It is not difficult to do it yourself though, the simplest way is to put 60%-70% in a Vangaurd Global Equity ETF and 30%-40% in a Vangaurd Global Bond ETF and let them run. This is very low cost - so your pension is not losing a lot of money to charges.

A lot depends upon your age now, how long you have to invest and what you want to do with the money at retirement. You have to consider your capacity for risk/reward as well. Give us some more info on your circumstances and plenty of people here will be happy to give you their opinions.

Cheers

Edited for typo and to highlight what Ozzie said about checking for any benefits your current pensions may have that you would lose if you consolidated them.

Edited by JulianPH on Sunday 25th September 11:30

FGB

312 posts

91 months

Sunday 25th September 2016
quotequote all
Look into low cost sipps.

Condi

17,089 posts

170 months

Sunday 25th September 2016
quotequote all
FGB said:
Look into low cost sipps.
Not helpful advice if the OP doesnt have a clue what he's doing. He'll just lose it faster.

FGB

312 posts

91 months

Monday 26th September 2016
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Condi said:
FGB said:
Look into low cost sipps.
Not helpful advice if the OP doesnt have a clue what he's doing. He'll just lose it faster.
Transfer to a low cost sipp, leave it in cash. Get small interest and 80 quid a year costs rather than the current 1 or 2 percent charges from his current providers.

Top up with additional money and get 20% gift from the government.

ps my advice is to get some independent advice smile


Edited by FGB on Monday 26th September 09:28

red_slr

17,122 posts

188 months

Monday 26th September 2016
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OP I posted similar comments recently in another thread. Last 2 years have been very poor

DibblyDobbler

11,257 posts

196 months

Monday 26th September 2016
quotequote all
I've got my wedge with Hargreaves Lansdown in a SIPP - I have a little bit of knowledge of pensions but no crystal ball - my main two funds are up over 20% in the last 2 years (Woodford Equity Income and Troy Trojan Income). No guarantees for the future obviously but doing ok so far...

kingston12

Original Poster:

5,473 posts

156 months

Monday 26th September 2016
quotequote all
JulianPH said:
Hi John, I'll try and help the OP...

John is right, it is investment choice and charges that determine the overall returns from a pension.

This is quite simplistic but, the FTSE was down c. 10% over the one year period to May 2016 so a FTSE Tracker would have fallen by twice as much as your pension (then add charges). As your pension has only fallen by half this amount it would indicate some good diversity that has protected you from half of this fall (after charges, too).

Taking a snap-shot over short periods is often not helpful, these are long term investments (by the way the FTSE has virtually recovered since May so much of your loss should have too).

Consolidating various smaller schemes into one pot is often a good idea as you can see everything in one place. Have a look at something like YouInvest from AJ Bell. You can move all your pensions over for free and then pick a selection of low cost Exchange Traded Funds to build a portfolio you are happy with, or select an fully managed investment option (I would recommend one that uses passive investments to reduce costs) or ask an adviser to make a recommendation for you for a fixed fee.

It is not difficult to do it yourself though, the simplest way is to put 60%-70% in a Vangaurd Global Equity ETF and 30%-40% in a Vangaurd Global Bond ETF and let them run. This is very low cost - so your pension is not losing a lot of money to charges.

A lot depends upon your age now, how long you have to invest and what you want to do with the money at retirement. You have to consider your capacity for risk/reward as well. Give us some more info on your circumstances and plenty of people here will be happy to give you their opinions.

Cheers

Edited for typo and to highlight what Ozzie said about checking for any benefits your current pensions may have that you would lose if you consolidated them.

Edited by JulianPH on Sunday 25th September 11:30
Thanks for those comments. In terms of the other information, I am 40 years old, can't imagine I'll retire before 65 and I'd like to stay flexible as to what to do with the money at retirement.

My current work scheme has a 15% contribution going in and seems to grow a little bit each year, but some of the schemes I stopped contributing to 10+ years ago are not worth much more now than they were back then!

Gio G

2,945 posts

208 months

Monday 26th September 2016
quotequote all
Similar situation to you OP. I reckon around 10% growth year on year. That does not consider what I or my employer have contributed. Majority of my funds are all high risk, as I have quite a way to go for retirement.. Starting to see some good signs of recovery.

Have to say, some fantastic advice on here, to those regular contributors - should be proud of yourselves!!

G

JulianPH

9,912 posts

113 months

Tuesday 27th September 2016
quotequote all
kingston12 said:
Thanks for those comments. In terms of the other information, I am 40 years old, can't imagine I'll retire before 65 and I'd like to stay flexible as to what to do with the money at retirement.

My current work scheme has a 15% contribution going in and seems to grow a little bit each year, but some of the schemes I stopped contributing to 10+ years ago are not worth much more now than they were back then!
How much of the 15% contribution to your work scheme is made by your employer? This seems a sensible level and if they will make further contributions if you do I would max this out as much as you can afford. It is free money.

With your old schemes I would call each provider and ask if you have any additional benefits you may not be aware of (guaranteed annuity rate, minimum guarantees, etc.) and also check there are no exit/transfer charges (sometimes it helps to ask for a current value and then ask for a transfer value - the two may not necessarily be the same, despite them telling you there are no exit/transfer penalties!).

If you do have any additional benefits then you need to weigh up whether you are better to stay put or better to start afresh. Post back here if you are not certain about anything.

If you do consolidate and start anew then with at least 25 years for investment you could afford to take a higher degree of risk now, lowering this as you approach retirement.

For the cheapest and simplest solution you could go with a Vangaurd 80(equity)/20(bond) lifestyle fund and move to 60/40 and then 40/60 as you get closer to retirement. With five years to go you should know what you want to be doing with this pension money (income drawdown, withdrawal, annuity, combination).

If you need a lump sum for withdrawal (tax free cash and annuity purchase) you could look at the 20/80 strategy to really reduce volatility in the final few years. For money you want an income from start looking for a good income investment (again a mixture of equity income and bonds) ahead of drawing the income. I believe it is prudent to only draw in any year the income generated in the previous year - so you do not erode your pot. Remember to leave some invested to account for inflation too.

You could look instead to pay extra for a fund manager or model portfolio service from a DFM (which is basically exactly what you would get from full on DFM at half the price) to run your pension money. Neil Woodford has a fantastic track record for generating income and growth and really adding value for his fee.

You may also want to keep a small part of your funds aside for self investing into specialist funds/ETFs/stocks. This can be interesting and fun if you do your research and stick with what you know! Look at your employment sector - any investment opportunities you can see and understand? The same with your general interests. Stick with listed companies/bonds though and/or regulated investments.

The whole thing can be very interesting when you get into it, and very satisfying too.

Finally, if you take the time to learn about the different tax wrappers (pension/SIPP/ISA being the main ones) and the investment options available to you you shouldn't need to pay a financial adviser, but if you do need to make sure it is a fixed fee for the hours spent.

I have never understood why people agree to pay away a proportion of their entire investment portfolio each and every year for advice. It's like paying away a proportion of the value of your house every year to get advice about what improvements could make it worth more when you sell it!

Simpo Two

85,149 posts

264 months

Tuesday 27th September 2016
quotequote all
JulianPH said:
I have never understood why people agree to pay away a proportion of their entire investment portfolio each and every year for advice. It's like paying away a proportion of the value of your house every year to get advice about what improvements could make it worth more when you sell it!
It is strange how the industry has come to live on a perpetual drip feed of percentages for little or no work. I paid an IFA about £5K last year, and I'm still wondering what he actually (constructively) did to earn it. How did I fall for it?

kingston12

Original Poster:

5,473 posts

156 months

Tuesday 27th September 2016
quotequote all
JulianPH said:
How much of the 15% contribution to your work scheme is made by your employer? This seems a sensible level and if they will make further contributions if you do I would max this out as much as you can afford. It is free money.

With your old schemes I would call each provider and ask if you have any additional benefits you may not be aware of (guaranteed annuity rate, minimum guarantees, etc.) and also check there are no exit/transfer charges (sometimes it helps to ask for a current value and then ask for a transfer value - the two may not necessarily be the same, despite them telling you there are no exit/transfer penalties!).

If you do have any additional benefits then you need to weigh up whether you are better to stay put or better to start afresh. Post back here if you are not certain about anything.

If you do consolidate and start anew then with at least 25 years for investment you could afford to take a higher degree of risk now, lowering this as you approach retirement.

For the cheapest and simplest solution you could go with a Vangaurd 80(equity)/20(bond) lifestyle fund and move to 60/40 and then 40/60 as you get closer to retirement. With five years to go you should know what you want to be doing with this pension money (income drawdown, withdrawal, annuity, combination).

If you need a lump sum for withdrawal (tax free cash and annuity purchase) you could look at the 20/80 strategy to really reduce volatility in the final few years. For money you want an income from start looking for a good income investment (again a mixture of equity income and bonds) ahead of drawing the income. I believe it is prudent to only draw in any year the income generated in the previous year - so you do not erode your pot. Remember to leave some invested to account for inflation too.

You could look instead to pay extra for a fund manager or model portfolio service from a DFM (which is basically exactly what you would get from full on DFM at half the price) to run your pension money. Neil Woodford has a fantastic track record for generating income and growth and really adding value for his fee.

You may also want to keep a small part of your funds aside for self investing into specialist funds/ETFs/stocks. This can be interesting and fun if you do your research and stick with what you know! Look at your employment sector - any investment opportunities you can see and understand? The same with your general interests. Stick with listed companies/bonds though and/or regulated investments.

The whole thing can be very interesting when you get into it, and very satisfying too.

Finally, if you take the time to learn about the different tax wrappers (pension/SIPP/ISA being the main ones) and the investment options available to you you shouldn't need to pay a financial adviser, but if you do need to make sure it is a fixed fee for the hours spent.

I have never understood why people agree to pay away a proportion of their entire investment portfolio each and every year for advice. It's like paying away a proportion of the value of your house every year to get advice about what improvements could make it worth more when you sell it!
Thanks Julian for the interesting and detailed reply. I am going to spend some time looking into this over the weekend.

The 15% is the maximum that my employer will contribute. In all the pension schemes I have had, I have always made sure I am getting the maximum employer contribution - as you say it is free money! I have never paid in any more than that as the returns have been so poor.

I totally agree with you about paying a percentage of the full fund value - that really seems like money for nothing. I'd be happier paying a percentage of the amount of money the fund actually increases by as it would incentivise the fund managers to actually make some profit for me!

Targarama

14,635 posts

282 months

Tuesday 27th September 2016
quotequote all
I recently consolidated 4 badly performing 'old' pensions from previous jobs into one new SIPP with Fidelity. I chose Fidelity as they have a good online interface, and because my ISA and another old company pension is managed by them. The SIPP was simple to set up, and the old pensions were equally simple to transfer over (Fidelity did most of the work). I don't want to chop and change all the time so I chose some mid-risk packaged funds and the SIPP is growing nicely already. It is so much easier to see what I 'have' now too.

I am aware that this means a lot of my money is with one provider, but I also have a good size pension with my current employer through another provider.

Collectingbrass

2,198 posts

194 months

Tuesday 27th September 2016
quotequote all
Bookmarked

Foliage

3,861 posts

121 months

Tuesday 27th September 2016
quotequote all
Someone has to lose money so others can gain it. If your in a +% count yourself lucky in the current climate.