Question about how (pension) funds work

antio

Hello,

newbie here, so please excuse what might sound like a silly question.

I have 2 pensions, with Scottish Widows and Aegon. I've diversified my funds and Aegon seems to perform better than SW (roughly 5.5% vs 2% average annual increase).

I also have a self-invest stocks ISA, to 'play' with. I've only had £2,000 in it until now, but I've decided to add £10,000 and it's getting more serious. Over the last 3 years, I've seen an average annual return of 33%! I generally do my research, but I do realise that this has been mostly luck.

I managed to get that 33% by investing in a fund, then selling when I saw some meaningful returns, then investing in a different fund and so on. This could be in the space of a few days/weeks/months for each buy/sell cycle.

My question is this:

How does that happen with pension funds? I mean, I have money in about 10 different funds in my pension and the choice is not great anyway. But any fund will go up and down and up and down... do I just hope it will 'generaly' go up? Do returns get somehow compounded? When I invest myself, I 'compound' money by selling when the time is right and buying something else. Had I kept it in the same fund, it would eventually go down at some point, no? If I keep my money in the same pension fund will it -in the long term- keep going up and hopefully give me a return of say >6% a year? Or would I need to 'manage' it myself? Am I missing something, or is it simple as that? Because judging from the last 4-5 years it doesn't seem to be happening

PS: Does anyone have any experience with SW funds? They seem rather pathetic and I do remember reading some not so good comments a few months ago. Are Aegon better in your opinion?

Sorry for the long post and thanks a lot!
Anthony

Neverland

antio wrote: »

Hello,

newbie here, so please excuse what might sound like a silly question.

I have 2 pensions, with Scottish Widows and Aegon. I've diversified my funds and Aegon seems to perform better than SW (roughly 5.5% vs 2% average annual increase).

I also have a self-invest stocks ISA, to 'play' with. I've only had £2,000 in it until now, but I've decided to add £10,000 and it's getting more serious. Over the last 3 years, I've seen an average annual return of 33%! I generally do my research, but I do realise that this has been mostly luck.

I managed to get that 33% by investing in a fund, then selling when I saw some meaningful returns, then investing in a different fund and so on. This could be in the space of a few days/weeks/months for each buy/sell cycle.

My question is this:

How does that happen with pension funds? I mean, I have money in about 10 different funds in my pension and the choice is not great anyway. But any fund will go up and down and up and down... do I just hope it will 'generaly' go up? Do returns get somehow compounded? When I invest myself, I 'compound' money by selling when the time is right and buying something else. Had I kept it in the same fund, it would eventually go down at some point, no? If I keep my money in the same pension fund will it -in the long term- keep going up and hopefully give me a return of say >6% a year? Or would I need to 'manage' it myself? Am I missing something, or is it simple as that? Because judging from the last 4-5 years it doesn't seem to be happening

PS: Does anyone have any experience with SW funds? They seem rather pathetic and I do remember reading some not so good comments a few months ago. Are Aegon better in your opinion?

Sorry for the long post and thanks a lot!
Anthony

Pensions generally seem to perform worse than ISAs because they are loaded with charges from fund managers and IFAs

This is a shame because the income tax breaks make them very attractive

If you are confident enough to self-invest your ISA you can also self invest your pension

You need an investment company to provide the legal pension wrapper (called a SIPP - self invested personal pension) who will charge you a small annual fee for it

% fees work out less when you have a small fund but get extortionate when you have a big fund. Fixed annual £ fees are the opposite

Self-investment can add 10-30% to your investment fund when you retire, without actually needed the fund to perform any better, simply through minimising fees to IFAs/fund managers

There is a large list of companies who will do you a cheap SIPP - Alliance Trust, SIPPdeal and AJ Bell are just three

If you are an employee in a company scheme you will need to find a way to transfer your pension fund out of the company scheme and into your SIPP - this could just be as simple as filling out a transfer form from the company scheme every year or two

atush

ISAs and pensions can invest in the same exact funds so there can be NO difference in performance. I dont' think this is IFA related, I think this is SW and them directing or limiting you in what funds you choose- many limit you to their own funds rather than allowing a large range of open market choices.

Plus when you trade your own shares, you can pick individual shares rather than funds so the gains (and losses) can be magnified.

Why not transfer out of the SW plan if you dont like it into a Sipp and run that yourself? Or into the other plan. Or at least change your fund allocation w/in the SW plan?

dunstonh

Pensions generally seem to perform worse than ISAs because they are loaded with charges from fund managers and IFAs

More misinformation. Pensions and ISAs share the same investment options and charges.

I dont' think this is IFA related

Never stops the trolls making it so though.

PS: Does anyone have any experience with SW funds? They seem rather pathetic and I do remember reading some not so good comments a few months ago. Are Aegon better in your opinion?

Depends on which SW contract you have. Is it a current version product or an old black horse life/lloydtsb life rebranded as scottish widows? Also, the current SW pension range has three products, each with a different number of funds available.

Neverland

dunstonh wrote: »

Pensions and ISAs share the same investment options and charges.

More misinformation from the IFA troll

dunstonh

More misinformation from the IFA troll

So that means you are saying that pensions and ISAs cannot access the same conventional investments with the same charges. In which case, how do you explain the pensions and ISAs that do offer the same investments at the same charges irrespective of tax wrapper?

Neverland

dunstonh wrote: »

So that means you are saying that pensions and ISAs cannot access the same conventional investments with the same charges. In which case, how do you explain the pensions and ISAs that do offer the same investments at the same charges irrespective of tax wrapper?

You said investment options are the same in an ISA and a SIPP - they aren't (e.g. commercial property can be put in a SIPP I can think of off the top of my head)

You said charges are the same in a SIPP and an ISA - they aren't, except in some schemes with providers who levy high charges

Your original statement was factually incorrect and misleading

Pot..kettle...black

dunstonh

You said investment options are the same in an ISA and a SIPP - they aren't (e.g. commercial property can be put in a SIPP I can think of off the top of my head)

We are talking conventional investments. do you see any reference to reference to commercial property by the OP? You are just being pedantic.

You said charges are the same in a SIPP and an ISA - they aren't, except in some schemes with providers who levy high charges

wrong.

SallyG

I'm with Scottish Widows - for sheer ineptitude in investment and admin. I think they're unbeatable.
If anyone can suggest a pension fund that will grow my fund by more than 6% per year without making stupid errors I would be most grateful.

atush

Neverland wrote: »

More misinformation from the IFA troll

And the troll is out from under the bridge- the IFA bashing troll.

atush

SallyG wrote: »

I'm with Scottish Widows - for sheer ineptitude in investment and admin. I think they're unbeatable.
If anyone can suggest a pension fund that will grow my fund by more than 6% per year without making stupid errors I would be most grateful.

The pension company doesn't determine annual performace (apart from t he affects of any charges such as AMC) but the investments within.

So, if you are not happy with SW admin, but like the funds available/where yours are invested, look for a DIY platform that offers those same funds (or better equivalent ones) with a different company/platform.

Basically no one can gurantee you 6% or more in performance as that is largely due to what YOU choose to invest it in.