DIY Pension - what should I do?

pensionpuzzle_2

Hi all,

I have a question about how to decide to choose the funds in a pension.

Am 34 and have a small £16k personal pension with Prudential. It's an old Scot Amicable plan and only has a choice of 15 different funds and is very restrictive on contributions. (Can only increase contributions by 15% max a year.)

I've tried the IFA route - spoke to many of them on the phone - who to their credit - were totally straight with me and said the pension pot was too small for them and their fees would be large in relation to the amount to transfer.

So am having to do it myself and would love some tips on comparing funds.
I was going to look at their performance over the last 10 years and see if they out performed morningstar's benchmarks.
Is there something else I should look for?

Finally, should I go down the discount broker route or to the company direct? I'm planning on getting the Scottish Widows personal pension product.

Would love to hear your views!

ana

yelf

mmm, I know IFAs who would help trnasfer it. It would be best based o nthe measly fund choice. Previous performance is no guide to future performance, but that doesnt mean its useless. check the managers detail, how long has he been managing, where does it invest, look at alpha and sharpe ratio, consider the AMC too.

EdInvestor

This is a very useful site for rating funds and fund managers:

http://www.citywire.co.uk/adviser/investments.aspx

dunstonh

Like Yelf, I know many IFAs that will look at £16k. The salesforces may not be that interested (those that have to share their earnings with the employer or directors). CFPs may not be interested as they prefer to look at larger amounts and on a servicing basis it wont be of interest to most IFAs but on a transactional basis there is certainly scope.

Pru's unit linked fund range is quite poor so I understand your reluctance to stick with that.

Finally, should I go down the discount broker route or to the company direct?

Never do direct. Its not cheap. Use an IFA on execution only basis (sometimes referered to as discount broker).

I was going to look at their performance over the last 10 years

It wont be as easy as that. Most external funds will not have a history that long. Indeed, some will only be a year or two. You will have to know what the unit trust that it is linked to has been doing.

Plus, ten years looking backwards is definetly not going to look the same as the next ten years. Some of the worst performers over the last 2 years could end up being some of the best going forward.

If you plan to be an active investor then looking at potential needs to be your focus. If you plan to be a lazy investor then building a portfolio without automatic rebalancing or a provider driven sector allocation would not be a good idea.

pensionpuzzle_2

Hi Yelf/Ed Investor and DustonH, thank you for your suggestions!

Dunstonh - when you wrote this -
"building a portfolio without automatic rebalancing or a provider driven sector allocation would not be a good idea"

did you mean I should look at the so-called "Lifestyling options" that some plans offer?

thanks again

yelf

basically if you split your inital investment 50/50 between say equities and bonds, over time the equities will outperform the bonds meaning your 50/50 will diverge more and more up to 70/30 and beyond. So your holding in say 5 years time will be more adventurous than your initial wish. This is where rebalancing comes in. So if you consider a managed portfolio, this should hopefully be rebalanced all the rime anyway, as opposed to picking single asset funds.

lifestyling just moves you into lower risk funds at pre-determined times. Ok if you dont have an IFA, but you may get moved out at a market low.