Which Stakeholder Provider?

malcb

HI - I want to stat a stakeholder (or Personal Pension - if the deal is better) and clearly the key question is which fund to pick as an investment vehicle. So how do I decide which fund will give me the best return in the future?! Clearly magic balls aren't widely available so it seems to me that you look at past performance and take a view on the particular company. Personally I have reservations about NU & SL so that rules them out.

Is there an online site which will give me the kind of information I need to make an informed comparison to lead to a decision? I am a passive and catious investor so my investment will reflect that but I do feel that after other tax breaks are taken up (e.g. ISAs) the 22% "boost" is to good to ignore in my mid 50s.

Or is anyone out there brave (or allowed?)to make specific recommendations?

Thanks

dunstonh

and clearly the key question is which fund to pick as an investment vehicle.

Not quite. The question is which funds. Single fund investing is old fashioned and leads to lower returns.

So how do I decide which fund will give me the best return in the future?!

Pick a spread from across the sectors with a percentage allocation in each which averages out to match your personal risk profile (not mine or anyone elses but yours).

so it seems to me that you look at past performance and take a view on the particular company.

Sector allocation is the first point. Then fund selection. Past performance can come into play but it should certainly not be looked at to compare funds outside of different sectors and consistency can be more important than a fund that happens to have been lucky in a short period. Measuring volatility, consistency, charges and risk are important when looking at funds and comparing like for like.

Personally I have reservations about NU & SL so that rules them out.

Both of whom offer very good stakeholder and even better personal pensions. Both have some internal funds which are highly regarded and having those available at 1% instead of 1.5% with other pension providers could make them very attractive.

Is there an online site which will give me the kind of information I need to make an informed comparison to lead to a decision?

Not really. The data for pension funds is still not freely available. Probably as the companies that issue the data charge IFAs for it so they are unlikely to stick it on sites for free. Unlike unit trust data where the fund supermarkets made information more freely available.

I am a passive and catious investor so my investment will reflect that

Good. Although you need to understand what that means. You wouldnt believe the number of people who put themselves into one category but end up in another after a proper risk analysis is done.

Or is anyone out there brave (or allowed?)to make specific recommendations?

Against board rules and against FSA rules. Pension/investments are a regulated area and provision of advice in those areas would be almost impossible on a forum like this.

We can discuss issues and suggest areas to investigate but we cannot give advice.

Milarky

You don't say (but it is implicit) whether you have a lump sum (eg to transfer or take advantage of current 100% of annual income limits) or only monthly savings from scratch to consider. Risk only increases as the sums at stake do. So from the off you can afford to be relatively undiscriminating in choice of funds I would have thought. After two or three years of paying in, however, thinking how your money is invested (and being able to see how it has performed) would become useful to you. But initially the returns are 'swamped' relative to the monthly premiums (i.e in month 'two' the premium is 100% of the existing fund.)

So one way to think about risk is as gradually increasing exposure over time. But in the first instance risk is a relatively unimportant factor. Thus you could start by basing it on a 'core' managed fund (balanced asset allocation is done for you) of at least 60% and perhaps divide the rest slightly less cautiously.

Pensions are made too complicated by the jargon. Don't get fixated by it. Think about the basics. Number one is to build up a lump sum by regular payments. Two is to monitor progress. As you haven't got to 'one' yet you don't need to go on to two and (as I've suggested) it is least important as a consideration initially anyway.

EdInvestor

Funds are rated on this site:

https://www.citywire.co.uk/Funds/Home.aspx

Pick only from the top 10.

Then you need a pension "wrapper" to put the funds in so you can get the tax relief.This might be a cheap online SIPP, or a personal pension provided by one of the big life companies, almost all of which now offer good quality external funds like the ones you'll find rated on Citywire.

it seems to me that you look at past performance and take a view on the particular company. Personally I have reservations about NU & SL so that rules them out.

When you say this I suspect you are thinking of the old With profit pensions, where the financial health of the providing company was integral to the likely performance of your pension.

It doesn't work like that any more.

These days the companies just provide a wrapper for which they charge you usually 1-1.5% a year and you then choose a selection of funds to put in it from the list they have available, which includes funds they run themselves and funds run by outside companies (like the ones on Citywire.)These latter are usually the ones you want as they are high peformance. An exception is the insurer's own Property fund, which will always be worth a look for some of your money as these are usually good performers.

Cautious older investors should IMHO always look at "equity income" funds for the stockmarket choice, which are lower risk than equity growth funds and trackers.

Dunstonh will suggest you pick a large selection of funds, but IMHO three or four will usually be adequate especially if you find more are just confusing. If you put most of your money in equity income and property funds, a little bit of money (10-20%) in something higher risk like commodities, small company funds,or something foreign, might add a bit of zip without too much risk.

dunstonh

Funds are rated on this site:

www.citywire.co.uk/Funds/Home.aspx

Pick only from the top 10.

The top 10 on there nearly are all high risk. Plus they are unit trust funds and not pension funds. The OP has said he is looking at SHP or PPP not SIPPs.

Dunstonh will suggest you pick a large selection of funds, but IMHO three or four will usually be adequate especially if you find more are just confusing. If you put most of your money in equity income and property funds, a little bit of money (10-20%) in something higher risk like commodities, small company funds,or something foreign, might add a bit of zip without too much risk.

Of course I will. I am a professional investor looking after millions. Any half decent professional investor would tell you that asset allocation is the key to decent long term returns. You read any report into why investors have failed to get decent returns over the years and it will say its because they didnt use sector allocation and went for single funds or obsolete funds. 10 years ago, had you picked the best performing fund or done sector allocation to medium risk with annual rebalancing, the sector allocated portfolio would have beaten the best fund.

When you look at the key sectors, you have UK, Europe, US, Japan, Far East, Property, Fixed Interest. Thats seven sectors. So, with Eds 3-4, which are you going to leave out? Each of those 7 sectors can be broken down further into sub sectors. Again, you will be leaving some pretty big holes and reducing your growth potential if you only pick 3-4.

Cautious older investors should IMHO always look at "equity income" funds for the stockmarket choice, which are lower risk than equity growth funds and trackers.

Just to highlight Eds inexperience, Equity Income is not cautious. On a crude 1-10 scale to measure risk, cautious would be 4-5. UK Equity Income covers funds in 6-7. Its a good sector, worth including in your portfolio but dont do it thinking it is cautious.

Milarky is also correct. It doesnt need to be difficult. You can pick just one fund and go with the pension. It wont be the best way but it is the simple way. You need to decide whether you want to treat this as an investment or do it and hope for the best.

EdInvestor

Oh dear we are confused aren't we.

First of all, risk is reduced by a process of asset allocation. There are only three major types of asset applicable here: shares, cash and bonds, property ( commodities funds will be of interest to some people as well). Foreign shares are just a subdivision of the shares asset category, and a high risk, higher cost one at that.

The type of fund the OP is thinking about ( eg balanced managed or With profits) contains these three categories: shares, bonds, property.I am simply suggesting that he looks at the best quality funds available in these sectors.of course if he wants one fund where it's all done for him, fine.

But these insurance funds are never the top performers. They are mainly responsible for the very poor performance of pensions over recent years.

The OP deserves to know that there is a better way, even if he finds it a bit too complicated without further study .I recommend further study, because in these days of low inflation and low returns, you need to choose high performance AND low cost if you can. Just picking a stakeholder with a basic managed fund in it is unlikely to do the business in this day and age.

EI funds are lower risk in the equity asset class.To reduce risk in the overall portfolio, reduce the percentage of equities, and increase the percantage of property,. cash and bonds.

So 50% equities, 25% cash and bonds, 25% property = medium risk

Recue amount of equities, increase amount of others to lower risk.

Note that balanced managed funds have 70% + in equities, cautious managed a maximum of 60%. That would still be too high for many people.

dunstonh

Oh dear we are confused aren't we.

Yes you obviously are.

The type of fund the OP is thinking about ( eg balanced managed or With profits) contains...

Where in the thread has the OP given any indication about funds he wants/has looked at?

But these insurance funds are never the top performers. They are mainly responsible for the very poor performance of pensions over recent years.

I agree that bog standard balanced managed funds are rarely a good deal and should be avoided. They are for the lazy investor and you get a return that reflects that.

The OP deserves to know that there is a better way, even if he finds it a bit too complicated without further study .I recommend further study, because in these days of low inflation and low returns, you need to choose high performance AND low cost if you can. Just picking a stakeholder with a basic managed fund in it is unlikely to do the business in this day and age.

I agree. This is an investment. It should be treated as such. Simple is possible but it wont be the best.

malcb

Thank you everyone - very helpful food for thought and suggestions for research.

jamesd

malcb wrote:

HI - I want to stat a stakeholder (or Personal Pension - if the deal is better)

Stakeholder pensions limit the fees and that tends to exclude the externally managed funds that are likely to be better performers. If you want to go for straightforward stock market tracker funds the stakeholder pension with lower fees may be the better choice. It's also likely to be the better choice if you want to invest say under 100 a month, just because of the minimum limits of some personal pension plans.

SIPPs are also worth thinking about if your risk profile suggests investing in conservative stocks directly instead of in funds, since stakeholder and personal pensions can't do this direct share buying. The potential benefit is lower costs, one potential loss is that you may not switch stocks if you should, while a fund manager could look after that for you (except in a tracker, which has to track whatever its tracking, however bad a stock looks). This probably doesn't fit your risk profile, even with conservative stocks.

malcb wrote:

clearly the key question is which fund to pick as an investment vehicle.

Multiple funds, so you're protected from poor performance of any individual fund. The fund of funds approach may be of interest for low work by you, since that involves one fund selecting other funds based on their view of the performance of the other funds. The disadvantage is two layers of fund fees instead of one. One advantage is reduced risk of your fund selection underperforming.

malcb wrote:

So how do I decide which fund will give me the best return in the future?! Clearly magic balls aren't widely available

First you need to decide when you plan to retire. That will give you the time horizon that helps you to decide your most appropriate level of risk. Traditional advice is that your risk level should start to decline as you reach perhaps the 5 years before withdrawing your money to buy an annuity. That could be as late as 75 if you, say, take 25% in cash at 65 and have other income. Or it could be 60 if you want to retire early.

If the horizon is 75, then your 50s age suggests equities as most appropriate if your risk tolerance allows them. Anything else can be expected to get you a lower pension... but you need to be able to sleep at night and selecting a lower expected pension value might be what you need to do to achieve that.

malcb wrote:

I am a passive and catious investor so my investment will reflect that but I do feel that after other tax breaks are taken up (e.g. ISAs) the 22% "boost" is to good to ignore in my mid 50s.

How passive and cautious is key here. For example, have you considered buy to let property, a fairly high risk activity? If the answer is yes, that would let you consider investments with higher earnings than savings accounts and bonds. If the answer is no, you may be required to go with those to sleep at night.

Whatever the risk, you can mix in different individual risk components to give you a balance that makes you, as an individual, comfortable.