Knowing what a good pension return is

dilby

Hi all -

This is probably a bit of a newbie question, but I'm wondering if there is a way of getting a better understanding of how my pension fund is performing compared to the market averages etc. I only started my pension around 3 years ago and have all my stats here but have no real bearings to know if the returns are any good. I know it's quite a vague thing to tell because there are so many factors at play but thought there might be some sort of comparison website or place where uk average stats are published?

Any help very much appreciated!

Blackbeard_of_Perranporth

That is a vague question. each pension is different and individual. I can answer your question by saying my pot in the last three years has more than tripled in value, yet growth has only been around 10%. This growth is far in excess of the interest I pay on the mortgage.

But that is only my top up pensions, others are DB variants!

here is a start point!
https://www.telegraph.co.uk/financial-services/investments/pension-advice/what-is-a-good-pension-pot/

This one says that you should aim for 10%
https://www.autoenrolment.co.uk/news/pension-funds-achieving-more-than-10-growth

dilby

Thanks for the reply - yes realise it's so vague! Mine has made 13.6% return this year for example (thats the actual interest gain) which my IFA said was 'good' but I just didn't know what that 'good' was based on! I thought there might be some indexes out there that can be used as a guide.

Blackbeard_of_Perranporth

That is good growth, mine ove rthe last three years has been over 10%, lowest of 9% three years back and 12.5% last year.

Prism

It depends entirely on what you are invested in - equities, bonds, cash, gold, property - or likely some blend of all of them. Your IFA will have asked you about risk level and that will effect your overall returns. For example last years overall equity return was around 22% so on that measure 13.6% is poor. However I assume that you were not fully invested in equities and so your return might well be just fine for your risk level.
If you do want to compare you will need a breakdown of what you are invested in and a comparable benchmark - however even then, comparing a single years performance doesn't tell you much.

SonOf

how my pension fund is performing compared to the market averages etc.

It is important to benchmark against your risk profile and not a benchmark that may be higher or lower than your risk profile. e.g. if your portfolio is risk rated to hold around 60% equities then there is no point comparing it to the general market of 100% equities.

but thought there might be some sort of comparison website or place where uk average stats are published?

Trustnet gives you the data of the 80,000 or so different investments out there. Or you can just ask your IFA as they should be able to tell you what the benchmark figure is for your investments.

Also, when paying in monthly, you need to remember that only one payment in that year has actually been invested for 12 months. The next payment would be 11 months, then 10 months etc etc. The date in the month can also have an impact in the short term.

dilby

Prism wrote: »

It depends entirely on what you are invested in - equities, bonds, cash, gold, property - or likely some blend of all of them. Your IFA will have asked you about risk level and that will effect your overall returns. For example last years overall equity return was around 22% so on that measure 13.6% is poor. However I assume that you were not fully invested in equities and so your return might well be just fine for your risk level.
If you do want to compare you will need a breakdown of what you are invested in and a comparable benchmark - however even then, comparing a single years performance doesn't tell you much.

Thanks. I don't fully understand the difference between what i have now and equities so I'll do some reasearch on that, but my risk level is 6 if that helps.

dilby

SonOf wrote: »

It is important to benchmark against your risk profile and not a benchmark that may be higher or lower than your risk profile. e.g. if your portfolio is risk rated to hold around 60% equities then there is no point comparing it to the general market of 100% equities.



Trustnet gives you the data of the 80,000 or so different investments out there. Or you can just ask your IFA as they should be able to tell you what the benchmark figure is for your investments.

Also, when paying in monthly, you need to remember that only one payment in that year has actually been invested for 12 months. The next payment would be 11 months, then 10 months etc etc. The date in the month can also have an impact in the short term.

Thanks, that website looks really handy - now I just need to learn how to use it!

Albermarle

”

Thanks. I don't fully understand the difference between what i have now and equities

Most pension funds contain a % of equities . In simple terms , the higher the %, the more volatile the fund but it should grow more over the long term.
So younger people are usually recommended to have a high% , whilst people nearing retirement will normally have a lower % equities. This is because when the markets have a bad year the higher % equity fund will fall a lot more than a lower % one . When you are young and sill working , you have got many more years to ride out any market crash .

dilby

Albermarle wrote: »

”

Most pension funds contain a % of equities . In simple terms , the higher the %, the more volatile the fund but it should grow more over the long term.
So younger people are usually recommended to have a high% , whilst people nearing retirement will normally have a lower % equities. This is because when the markets have a bad year the higher % equity fund will fall a lot more than a lower % one . When you are young and sill working , you have got many more years to ride out any market crash .

Thanks - so maybe being risk factor 6 at the age of 35 is a bit in the low side. Hmm.. thanks.. food for thought.

SonOf

dilby wrote: »

Thanks - so maybe being risk factor 6 at the age of 35 is a bit in the low side. Hmm.. thanks.. food for thought.

Timescale can dilute risk. However, there is also behaviour risk to consider.

If you moved up the scale to 9 or 10, then you could lose half your value in the pension during a major crash (two of which have happened in the last 20 years). Most people in the UK cannot handle that level of loss and many would make decisions that crystallise the losses.

Behaviour risk is usually the cause where someone says they will never invest in the stockmarket as they lost money before. i.e. they invested above their risk profile and then made bad decisions because they couldnt handle the paper losses.