Abysmal Pension Fund Investment Return

DancingBadger

A statement arrived today for one of OH's pension funds. It states that the return on a pot of £38,922 is just £234. :eek: Last year's return was £3,952. The Scheme's trustees changed the investment provider from Prudential to Zurich in February 2013. Any thoughts on why the return is so low would be appreciated.

OH has three pension pots - this one and another one of similar value, both with ex-employers - and another much larger pot with Aviva. Would it make sense to transfer this poorly performing fund to Aviva?

Drp8713

Can you find out the name of the fund/funds she is invested in?


She could have it all invested in one geographical region eg Asia that hasn't done much in the last year or a cash fund. Without more info its impossible to tell

DancingBadger

Drp8713 wrote: »

Can you find out the name of the fund/funds she is invested in?


She could have it all invested in one geographical region eg Asia that hasn't done much in the last year or a cash fund. Without more info its impossible to tell

The funds are listed as:
Company bonds
Global shares (index tracker)
Mixed selection
Money markets
UK government bonds (index tracker)

These are exactly the same as last year (2012/2013) except that 'Company bonds' were called 'Corporate bonds (active) last year.

The list looks very vague; I'd have expected to see actual fund names.

atush

3 of the 5 are cash/cash equivs, which probably didn't earn enough to pay fees. So that follows.

Global shares and Mixed selection could be anything- cant say from what was said.

dunstonh

It states that the return on a pot of £38,922 is just £234.

What is wrong with that?

Last year's return was £3,952.

And the year before that it may have been +5000 or -5000. You dont get the same every year. It is volatile. All you can really do is adjust the volatility to suit your timescale, knowledge and how you would react in bad times. In your case, it may be that you have reduced the volatility too much. Although if you are not happy with a small positive return then goodness knows how you would react with a medium sized drop in value.

Any thoughts on why the return is so low would be appreciated.

Investments have good years, bad years and nothing years. You never know which is next. You just average them out over the long term.

As mentioned, 3 of the 5 or low risk/low return funds.

Would it make sense to transfer this poorly performing fund to Aviva?

Not is you use the same investments inside the Aviva pension. It is not the pension that makes/loses the money. It is the investments.

atush

Why did you choose those 5 funds/investments?

mania112

Looking at a years performance has not been great for some, for the past couple of months.

Cash and Fixed Interest hasn't been great (for a while to be honest)

but (and at the other end of the risk scale)...

Far East, Latin America and Emerging Markets haven't been great either.

It takes a smart investor not to freak out at some of these returns, but you shouldn't - recovery (on the high risk side) has already begun.

The only people that might need to worry are those who want/need to 'cash out' now (whether that be literally, or buy an Annuity). Those people could realise a loss.

But, as Dunstonh says, over a longer term the returns would have been good.

princeofpounds

Look at a chart of the stock market. It goes up most of the time, and down sometimes. Sometimes, it goes down quite sharply.

Short-term, this movement is fairly random. Long-term, it makes positive returns over inflation (if you keep holding, and accumulating, through those sharp drops as well!).

His pension fund is invested in this, and other investments that behave in a similar, but less volatile way.

So it is perfectly possible to make only a little money some years, or even lose it. Other years, you will make great returns (for example, the previous year was over 10% return as you say).

If you want to judge how well your pension investments are performing, you need to compare the individual components to the overall market over a very substantial period of time.

This is a separate question to how good the pension itself is, as the pension is merely a wrapper or platform to access investments. This is much more to do with fees, service quality, scheme rules and investment choice available.

One important hint; low fees are very important over long time periods. Getting a 0.4pc fee to replace a 1pc fee may not sound much, but over 20 years it really adds up.

DancingBadger

Thank you for your responses and apologies for not responding before now.

I (we) understand the stock market is volatile and that it can go down as well as up (past performance, etc); it was just that this year's return was so low compared to previous years which, even in 2008/9, were in four figures.

The pension is with ITV and the funds are part of what the scheme describes as its "Hands Off Steady Option". As he's approaching 60, I think I understand why OH chose that option, but it could be too conservative given that this pension comprises only 10% of his total pension pot.

OH isn't planning to fully retire at the moment, but the recent and ongoing changes to private pensions have been a wake-up call and clearly we need to embark on a steep learning curve. :doh:

dunstonh

I (we) understand the stock market is volatile and that it can go down as well as up (past performance, etc); it was just that this year's return was so low compared to previous years which, even in 2008/9, were in four figures.

If you understood it, you would know you get positive years, nothing years and negative years. Yet you are saying last year was low compared to previous years. So, are you sure you understand it?

2008/9 saw an over 40% stockmarket crash. You would not have seen gains that year unless you were in a deposit fund. It sounds like it is likely to be heavy in bonds/gilts given the investment style and age. They are low return/low volatility.

OH isn't planning to fully retire at the moment, but the recent and ongoing changes to private pensions have been a wake-up call and clearly we need to embark on a steep learning curve.

Maybe he shouldnt be in an option that reduces risk in the lead up to retirement at 60 if he is not retiring at 60.

Waldorf_Statler

I'm in the same scheme.

I averaged about 6% but with rather different allocation (hands on).

Mixed Selection and Global Shares returned about 5%; Company Bonds very little. Money Markets by the nature of the investment would be negligible return (but at no risk). Not sure about Government Bonds (I don't hold the investment myself so haven't tracked the unit price) but wouldn't expect high returns there.

As others have pointed out, could be worse. The Emerging Markets fund within the scheme dropped almost 10% 12 months to April. That would smart a bit, aged 60, taking a fall like that.