Is my M&S stakeholder pension OK?

mrsturn

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Hi- Can anyone offer any advice?? I have had a Marks and Spencer Financial services stakeholder pension for about 3 years now. I keep hearing about all the trouble at M&S and wondering if this will affect my pension. Please help..... thanks.

dunstonh

M&S are selling off their financial services to HSBC.

Irrespective of that, as you are invested in unit linked funds, the financial strength of the administration company is irrelevent.

M&S offer four funds. None of which have performed consistantly above sector average although one has is just above at present. Although being the cash fund, hardly anyone will be invested in it unless they are in their final years.

HSBC funds in the same sectors have performed consistently better. So, hopefully the new fund managers will turn the performance round over the long term although in the short term, they may be a hit whilst they adjust the holdings.

Or, HSBC may not integrate it and just keep it as closed funds and put no management into them to maximise profit. Or they could sell the investment side on as it was really the credit side that they were interested in and not the ISAs and pensions.

What made you buy a pension from a clothes shop?

mrsturn

Good question.....being financially incompetent I suppose
So what should I do? Can I transfer it or is that it now? Thanks for your advice.

dunstonh

I dont know is the only response that can be given.

Future unknown is where you stand at the moment. Although that applies to many an investment. Just a bit more in your case as you dont know the future of the provider and how they intend to treat you.

There is one thing that is certain and that is charges. Get your M&S pensions key features, brochure or documents out and look for what the annual management charge is. If its 1%, then that can bettered elsewhere.

There is no penalty to transfer and if you are going to do it, it may be wise to do the transaction before April 2005 when the stakeholder charge increases. So now is the time to investigate it.

An IFA will check your plan and advise you on a course of action if you dont want to do it yourself. However, you can get marginally lower charges doing it yourself and knowing where to look. (for hints of where to look are in this forum).

mrsturn

The annual management charge is 0.7%. Is it best to stick with low charges, or look for a company that performs well?

Can anyone recommend a couple of companies (is that the right word?) I can look at and compare.

By the way - thanks DD for your help. Very much appreciated.

dunstonh

The charge is good but the funds are poor. You have saved 0.3% per annum but the M&S Balanced equity fund has performed 14% below its sector average over the last 5 years. If you take a simple average of 2.8% worse per year fund performance but saving of 0.3% you are still 2.5% per annum worse off over the last 5 years.

Norwich Union, Friends Provident, Clerical Medical, Prudential, Scot Equitable, Scot Life, Scot Widows, Standard Life all have funds in the same sector which are consistantly better. HSBC is also better.

The crunch is that do you think charges are the most important or is fund potential and past performance? Also, what impact do you think HSBC is going to have?

We dont know about HSBC and only you can decide about the charges vs performance potential. Some will look for every 0.1% per annum they can save even though the fund potential is awful. Others look for a balance between the two. Some dont mind paying a little more for funds managed by professional fund management companies with the "hope" that they will perform better. Most dont have a clue either way ;D

There is no guarantee that the alternatives available will perform any better than what you already have as past performace is not a guide to future returns.

Pal

The charge is good but the funds are poor.  You have saved 0.3% per annum but the M&S Balanced equity fund has performed 14% below its sector average over the last 5 years.  If you take a simple average of 2.8% worse per year fund performance but saving of 0.3% you are still 2.5% per annum worse off over the last 5 years.

Norwich Union, Friends Provident, Clerical Medical, Prudential, Scot Equitable, Scot Life, Scot Widows, Standard Life all have funds in the same sector which are consistantly better.   HSBC is also better.

Not that historical performance is any reflection of how they will perform in the future of course.

dunstonh

Not that historical performance is any reflection of how they will perform in the future of course.  

hence my last paragraph

Pal

So to summarise your previous post:

"Past performance has been x,y,z but you should ignore it. Charges are known, future performance of any fund is not, you have to make a guess."

So why mention past performance of any of the funds at all? Why even consider it? If the whole thing comes down to a guess, surely the advice to mrsturn should be:

"By investing in any equity fund you are gambling. BY investing in an actively managed equity fund you are gambling even more. Throw darts at a page of fund providers and you might get lucky or you might not. Alternatively, go for lower charges and invest in a decent index tracker fund, which will at least remove the risk of underperforming the market benchmark."

???

dunstonh

Past performance is no guide for future performance but it does allow you to compare different managers in the same period.   A fund which has been consistantly performing below sector average is quite likely to continue like that in the future.    It shouldnt be the only consideration but its there to help you make a decision.

Past performance comparisons are there not judge future returns as that is unknown.  It is there so you can see how a fund has done against others.  

An index tracker fund is higher risk than a managed equity fund investing in areas covered by that index.  So saying that the managed fund is higher risk is incorrect.  Index trackers tend to perform better than their equivelent managed funds during growth periods but lower during poor periods as managed funds usually have some downside protection which isnt present in index trackers.

It comes back down to personal choice.  Some will want to pay 0.5% more per annum to be in these historically better funds rather than be in a default low charge fund and vice versa.  

What is more important is asset allocation.   You shouldnt stick all your money in one fund.  Doesnt matter if its a tracker or a managed fund.   The difference in sectors is generally much greater than differences in funds in one sector.   You should build a portfolio of funds in different areas with a percentage split in each to suit your attitude to risk.  

Pal

Past performance is no guide for future performance but it does allow you to compare different managers in the same period.   A fund which has been consistantly performing below sector average is quite likely to continue like that in the future.    It shouldnt be the only consideration but its there to help you make a decision.

I do not believe that it does help make a decision. It is entirely probable that random chance will have more of an impact on deciding whether manager x outperforms manager y than any amount of "skill" that the manager may say that they have. As a result, all you are doing is comparing two randomly generated statistics against each other, and as such, no conclusions can be drawn at all from past performance.

The only use for past performance is for patting yourself on the back (or slapping yourself around the head) when reviewing the performance of a fund IN WHICH YOU HAVE ALREADY INVESTED after you have cashed in the investment.

Comparing funds against each other based on past data is fundemantally flawed:

- The figures are produced by the investment managers and are not independently audited. The commentaries they provide to explain performance are dominated by spin;
- Most active investment managers claim to have a robust system for selecting investments but few actually implement it in a robust manner. They are usually as inefficient as the companies that we all work for. Why would they be any different?;
- The sample of past statistics is inherently baised because unsuccessful (or unlucky) funds are usually closed down/rebadged or otherwise replaced quickly. This means that a past performance sample will generally show that a greater than average number of funds will outperform a given index over any period, even though investors as a whole will not;
- Almost all equity performance away from an index can be attributed to blind luck, however active managers will always attribute bad performance to bad luck and good performance to skill, even though the impact of randomness is the same each way.
- In any large enough sample of active investment managers, random performance will result in some managers outperforming an index year after year, turning them into media "star" managers. But because the past performance is almost always the result of random effects, good past performance does not, in any way, mean that they are more or less likely than the next fund to continue to outperform going forward.

An index tracker fund is higher risk than a managed equity fund investing in areas covered by that index.  So saying that the managed fund is higher risk is incorrect.  Index trackers tend to perform better than their equivelent managed funds during growth periods but lower during poor periods as managed funds usually have some downside protection which isnt present in index trackers.

My opinion is that managers do not make tactical decisions to invest in cash, simply because if markets go up they could lose out against their competitors who use past performance to sell their wares. As a result an equity fund manager will always hold as little cash as possible as it is better for them to perform in line with an index that is falling than underperform an index that is rising. As a result I disagree with what you have said but would be really interested to see any statistics you have that would back you up, as I would love to question investment managers that make tactical asset allocation decisions in this way.

The only possible exceptions are hedge funds (which are high risk, despite what they might say to the contrary) and balanced funds that invest in a mix of assets, and they benchmark themselves against other balanced funds using averages (CAPS etc) and so do not make significant asset allocation decisions away from the average. In addition, using a balanced fund also flys in the face of your asset allocation comments (which I broadly agree with) as the investor cannot control the asset allocation.