Why can't I get a good range of funds in my employer's pension?

alexanderalexander

Simple question really -- I have a pension with my employer through Fidelity. I get to select my own Fidelity funds online, but the funds available are all relatively low-risk ones such as corporate bonds, cash, North American and UK blue chip equities -- all of which have a history of pretty conservative returns. I'm in my mid-20s, so it is around 40 years until I retire; as such, I would very much like to have the opportunity to put my pension money somewhere a bit racier such as emerging markets or smaller companies funds, which I suspect have a much better long-term growth potential. Over such a long investment period, the volatility won't matter at all. So why are Fidelity denying me access to riskier funds? And why does my employer not run its pension scheme through a SIPP-style platform where I could just choose my own funds from various providers?

(I am not expecting a solution to the problem, I just want to satisfy my curiosity. It is pretty annoying though as over a 40 year investment period a compound return averaging say 14% would end up leaving me with one hell of a lot more money than a compound return averaging 7%).

Linton

I suggest you put the question to your pension people - I dont believe it would be Fidelity which imposes the restrictions.

Perhaps access to the more esoteric funds would be more expensive for your employer.

hugheskevi

It is up to the employer what investments he chooses to offer.

Most people suffer from paralysis of choice, and offering them a choice of 100 or so funds just leads to them not knowing what to do, and not engaging.

So, there is a school of thought that less choice is better than more choice - in a small number of cases there is no fund choice whatsoever. Trust-based schemes typically offer less funds than contract-based schemes.

By choosing your own funds, you are in a minority. Typically about 80% of individuals would just be in the default fund. That is why many believe the focus should be on making the default fund as good as possible, and not about fund choice.

But, there are ways to have the best of both worlds. For example, an employer could have a front end such that a SIPP (or a personal pension with a large fund choice) appears to be a personal pension with just a few funds, but for those such as yourself who want the full range, it is available (possibly with a different pricing structure).

CLAPTON

alexanderalexander wrote: »

(I am not expecting a solution to the problem, I just want to satisfy my curiosity. It is pretty annoying though as over a 40 year investment period a compound return averaging say 14% would end up leaving me with one hell of a lot more money than a compound return averaging 7%).

of course a compound return of say a loss of 14% pa would mean you have peanuts in retirement

remember that high risk mean just that; you can lose an awful lot

alexanderalexander

Linton wrote: »

I suggest you put the question to your pension people - I dont believe it would be Fidelity which imposes the restrictions.

Perhaps access to the more esoteric funds would be more expensive for your employer.

I had assumed that it was Fidelity restricting the choice for some reason, but I might go ahead and ask them....

CLAPTON wrote: »

of course a compound return of say a loss of 14% pa would mean you have peanuts in retirement

remember that high risk mean just that; you can lose an awful lot

My view is that when people describe emerging markets funds as "high risk", what they mean is that there is a high risk of high volatility in the short-to-medium term; a glance at the MSCI Emerging Markets Index for the past five years suggests this view is certainly correct! However, they don't mean that there is a high risk that over a 40 year period emerging markets will consistently do worse than blue chip shares/corporate bonds -- in fact, all the evidence suggests strongly points to the opposite! As with my pension I would be looking to cash in my investment in the early 2050s, short-to-medium term volatility is not a problem at all.

atush

You say it isn't a problem, but 80% of people who say that then come here and cry when their pension is down 20% after a crash.

And if you were in NA last year, your pension should have done alright? the US had a fairly good year (as did indonesia and Qatar)

dunstonh

The employer decides the type of pension through their advisers. In general, employers like it simple because employees (typically) dont have a clue.

The typical consumer doesnt think of investments long term. They panic on short term losses or get grumpy and start going off on one about how bad it is their pension lost 10% last year. Totally ignoring the 40% it gained the year before. Employers dont want to be dealing with that.

atush

And then they grump to everyone they know that all pensions are rubbish, and you shouldn't bother. Ignoring that they might be up 30% over 2 years ie 15% per year plus on top they have saved tax and NI.

Sorry abt the rant lol.

alexanderalexander

atush wrote: »

You say it isn't a problem, but 80% of people who say that then come here and cry when their pension is down 20% after a crash.

atush wrote: »

And if you were in NA last year, your pension should have done alright? the US had a fairly good year (as did indonesia and Qatar)

I can imagine some people do, but I would certainly not be one of them! I don't actually have any of my pension in the North America fund (it's split between UK equity and Pacific equity), but as I am taking a 40-year view my having missed out on relatively benign NA markets last year does not worry me in the slightest J

dunstonh wrote: »

The employer decides the type of pension through their advisers. In general, employers like it simple because employees (typically) dont have a clue.

dunstonh wrote: »

The typical consumer doesnt think of investments long term. They panic on short term losses or get grumpy and start going off on one about how bad it is their pension lost 10% last year. Totally ignoring the 40% it gained the year before. Employers dont want to be dealing with that.

That does make sense, but it seems an awful shame that higher-growth options are denied to those of us who have actually thought carefully about these things and are prepared to ride out the volatility. Incidentally, my employer is actually a City firm, so you'd have thought that a substantial proportion of its employees would be fairly sophisticated personal investors….