Average savings returns comparisons

Telegraph_Sam

I am arguing with the insurance company with whom I hold a pensions retirement savings plan over the negative return / drop in value I have seen over the past 3 years, despite my investment being lodged in their most risk averse "deposit" fund. How / where can I find a sensible % return yardstick for comparison, if say I had had my savings invested in the better online instant access savings accounts over the past 3 years (March to March)? Strictly speaking of course money invested in a ("deposit") retirement plan is less accessible than an instant access savings plan and should therefore have a better yield.

innovate

google is your friend, as usual.....

http://www.swanlowpark.co.uk/savingsinterestannual.jsp

marathonic

I'd expect a slight drop in value in most deposit funds within a pension wrapper. They're not really designed to be the long-term investment of choice in a pension fund - just to park cash whilst waiting to invest it in a 'proper' pension fund.

You'll probably find that the funds annual management charge has exceeded the interest rates over the past couple of years.

Also, just because your pension is locked away until you're 55 doesn't mean the cash is locked away until then - so there's no reason they should really offer better yields than an instant access account. In reality, you could shift it all to an equity fund within 1-2 days.

Let's say I'm retiring in 5 years time and am invested 100% in cash. The company with whom I hold my pension cannot invest this in a 5-year fixed rate deposit account. This would be outside the scope of most funds objective statements.

bigadaj

innovate wrote: »

google is your friend, as usual.....

Not if you are hmrc!

marathonic

Just to add, I had a look at my pension companies factsheet for the cash fund. They invest in products with a maturity of up to 12 months in the future.

The fund is spread across a number of banks deposit accounts but, by far, the biggest holding is UK Treasury Bills. If you look at current rates available on these, the product with 6 months maturity offers the largest interest rate (unless you go out to the multi-year versions) - it offers a whooping 0.39%. The fund has a management charge of 0.5%.

Telegraph_Sam

Pensions funds are obviously geared towards those contemplating retirement within the planning horizon. All advice is that well before the day comes to call on your funds for the intended purpose (many say that this should be 5 rather than 3 years) you should move into cash or a near equivalent, which is what I was given to believe the "deposit fund" was intended to do. So I followed the advice. If it now turns out that this was a recipe for losing money, predictably, whatever the language and contortions ("management charges"!!!) used, and that in reality to preserve the headline value at least of my savings I should have cashed in the plan years ahead of need, then I reckon this is a case of misrepresentation. Once I have some sensible figures for comparison I will intend to pursue this. I regard myself as not a guru but reasonably financially clued up, so if I can fall for this catch 22 I think it should be aired publicly by the financial media. PS Thanks for the quick replies!

marathonic

Telegraph_Sam wrote: »

All advice is that well before the day comes to call on your funds for the intended purpose (many say that this should be 5 rather than 3 years) you should move into cash or a near equivalent, which is what I was given to believe the "deposit fund" was intended to do. So I followed the advice.

The 'typical' advice is to switch away from a high allocation to equities starting about 10 years prior to your retirement age. Equities are at the upper-end of the risk scale but there are other options that are, traditionally, less risky than equities but not as low risk as cash - for example, property and bonds.

I've never heard anyone being advised to move to a cash fund 10 years prior to retirement - bond funds would be the more 'standard' advice.

Cash funds will almost always lose money on an inflation-adjusted basis and, in the current low-rate environment, have also lost money on a nominal basis.

Therefore, I'd find it highly unlikely that someone that doesn't have some sort of unusual personal circumstances would be advised to move to a 100% allocation to a cash fund 3-5 years before retirement.

Telegraph_Sam wrote: »

I should have cashed in the plan years ahead of need, then I reckon this is a case of misrepresentation. Once I have some sensible figures for comparison I will intend to pursue this. I regard myself as not a guru but reasonably financially clued up, so if I can fall for this catch 22 I think it should be aired publicly by the financial media. PS Thanks for the quick replies!

"Cash in the plan"? This is a pension - except in extremely unusual circumstances, such as a minuscule sized pot, you cannot do this.

There is no misrepresentation on the part of the pension company here. If anything, you may have some comeback against whoever gave you the 'advice' to move to a cash fund. Was it an IFA that gave you such advice or people on MSE, friends and family?

Telegraph_Sam

The advice that I was given came about in the course of extensive correspondence between myself and the insurance company themselves. Fine distinctions between cash, property and bonds did not feature in the discussions, rather in their terminology "risk average" which in turn related to the degree or otherwise of equity-linkage. I maintain my stance that if having chosen the "highest level of security", which relates to their deposit fund, I am worse off in nominal terms after 3 years, then I have cause for dissatisfaction. Even a high street bank would have done better than that.

As I said it is a catch 22 in that the investor is obliged to accept a reduction in fund value (due to the impracticality of cashing in as you point out) despite taking precautions to the contrary. It certainly comes across in retrospect as clear misrepresentation.

Will see what results.

jem16

Telegraph_Sam wrote: »

The advice that I was given came about in the course of extensive correspondence between myself and the insurance company themselves.

Unfortunately the insurance company will not have given you advice as they are not authorised to do so. They will just have given you information of their products and the choice was down to you.

Ultimately if you had wanted advice, you should have seen an IFA. That way you would at least have had consumer protection.

Telegraph_Sam

They put me in touch with one of their own advisers who as I understood it was qualified to advise me on the choice of their own products if not from the market as a whole. Had it been as clear cut as you might be implying then they should not have entered into any correspondence with me on the topic whatsoever. Which was not the case.

jem16

Telegraph_Sam wrote: »

They put me in touch with one of their own advisers who as I understood it was qualified to advise me on the choice of their own products if not from the market as a whole. Had it been as clear cut as you might be implying then they should not have entered into any correspondence with me on the topic whatsoever. Which was not the case.

Have you been able to check that it was an adviser?

Did you get a report from the adviser recommending a specific choice or was the choice down to you as is usual with the likes of a bank's financial adviser?