Help me understand my pension performance

pledgeX

I posted this a little while ago in the Saving and Investments board, but got no responses so I though this might be a more appropriate board.

About 18 months ago I was enrolled into my workplace pension scheme. It's a mediocre scheme (I pay 1%, employer pays 2%) , but it's still free money so I'd be silly not to.

What I'm confused by is the performance of the scheme. I logged into my account (with Scottish Life) and can see it's invested into the Balanced Tracker Lifestyle Strategy fund which is made up of the following:

SL Property 17.00%
SL Long (15yr) Corporate Bond 5.50%
SL Long (15yr) Index Linked 6.50%
SL Global High Yield Bond 1.00%
SL/BlackRock Aquila Global Blend 70.00%

Looking at the performance charts from the time I started the pension up until now:
The property fund has grown ~8%
The Blackrock Aquila fund has grown ~25%
The other three are bonds and gilts so don't have performance charts but I believe are around in the very low single figures.

Each of these funds have a management charge of 1% (TER).

So based on the above, I'd expect my pension pot to have increased in size. However, having looked at my contributions (this is broken down into my contributions, my employers contribution, and the 20% tax relief) vs the total fund value, it's actually lost ~£200.

How does this add up? The only thing I can think of is that because the the bonds/guilts are tied up for the long term they are not included in this figure, even then, that wouldn't account for the difference. Other possible explanations:
- Other charges that I'm not aware of
- Me just being simple (quite likely!)

Thanks for any help.

Linton

One factor you may not have taken into account is that on average your contributions have only been invested for 9 months so you cannot expect more than half of the 25% return of the main constituent of your pension. Also I note that most of the 25% increase occurred during the first half of the 18 months when there was comparatively little in the account.

This would explain much of the less than expected performance but I cant see it explaining everything. To comment more I would like to see the details of monthly fund purchases. It may be that not all your contributions had reached the funds when you looked at the data.

dunstonh

So based on the above, I'd expect my pension pot to have increased in size. However, having looked at my contributions (this is broken down into my contributions, my employers contribution, and the 20% tax relief) vs the total fund value, it's actually lost ~£200.

The performance figures you have looked at assume you invested all the amount on day 1. You are not doing this as you are paying monthly. You could have paid some or most or all of your premiums when the values were higher but are currently lower.

Or it could be that there is an adviser charge (so that would see an up front amount paid (or over a 12 month period) but a lower AMC than 1%). Very common with Scot Life plans and one of the reasons they are popular (it results in lower charges than mono charged plans where the AMC is higher but no up front amount paid).

fairleads

In other words your " negative equity" is due to a combination of high costs and poor returns.

pledgeX

Thanks for the replies folks.

The point about not having the full amount invested for the 18 months makes sense and would explain a fair chunk.

I've also dug out the paperwork and dunstonh was spot on about the up-front fee. I had to pay roughly £300 for an initial fee. That's out of the way now so I'm only paying the AMC of 1%.

The only other fee I can see is defined as follows:

If your regular contributions increase because of a change in your pensionable salary, we will make further charges over 12 months from the date of each contribution increase. The amount of each monthly charge will be 50% of the increase in yearly contributions divided by 12.

So if I went from 21k to 24k, I've calculated that as follows:

21k equals:
17.50 monthly contributions from me.
+ 4.38 tax relief
+ 35.00 employer contributions
= 56.88 p/m, or 682.56 per year

24k equals:
20.00 monthly contributions from me.
+ 5.00 tax relief
+ 40.00 employer contributions
= 65.00 p/m, or 780.00 per year


780.00 - 682.56 = 97.44 increase over the year.
50% of which is 48.72.
Divided by 12 = 4.06

Therefore I'd be paying 4.06 over the 12 months following my pay rise. Are those fairly standard charges for pension providers?

bigadaj

It looks like quite a poor scheme really, though you do get the employer contribution to compensate. Your fee of 1% is on the high side. And should only be based on the fund value, additional money for increased contributions is another bit of Mickey taking from the pension provider in my opinion.