My Pension Funds terrible performance

Tony_J

I have a workplace pension with Scottish widow I have been contributing to for 10 years. About a year ago I upped my contributions to it considerably.  But looking at its performance I'm wondering if it was a mistake.  I get there is a lot of financial uncertainty at the moment.  But compared to other dormant pensions I have its performance seems terrible and particularly the last month.  To give some figures.

Total paid in £62,345.00 
Current value £57,724.22
Value checked on 30 August £64,794.91 (I can only assume it was an error on my part, but when I checked on this date I recorded total paid in to be £63,353.75)

I guess the funds I'm in will hold the key, but these will be default funds.  I'm thinking I should hold off changing anything out of panic, I don't intend to be drawing on these funds for a while yet (5 years or more) and if I did want to change things, I wouldn't really know where to start.

Is this performance as awful as it seems to me.  Should I just stop looking at it and hope the financial world becomes more stable over time?

Keep_pedalling

I would not expect any sort of loss over that time period, what funds are you in?

Tony_J

Keep_pedalling said:

I would not expect any sort of loss over that time period, what funds are you in?

SW SSgA 50:50 Global Equity Index PensionFund code: CG	38.905%	£22,457.49
SW SSgA Index Linked Gilts Over 5 Years Index PensionFund code: CY	20.817%	£12,016.18
SW SSgA Non Gilt Sterling Bond All Stocks Index PensionFund code: CW	20.231%	£11,677.97
SW SSgA UK Conventional Gilts Over 15 Years Index PensionFund code: CZ	20.048%	£11,572.58

OldScientist

You appear to be invested in, roughly, 40% equities and 60% bonds. While equities have dropped a bit (just under 5% from June 2021 to June 2022, see table in the data sheets), bonds and long bonds in particular have dropped in value significantly since interest rates have been increasing - e.g. by about 20% from June 2021 to June 2022 according to the tables in your data sheets. If (and I don't know) interest rates continue to rise then further drops in bond values will occur.

You mention that you are 5 years or more away from retirement, so an asset allocation with 40% equities does seem a bit conservative to me (but asset allocation is a very personal decision).

Linton

One factor you need to take into account is that  as you were drip feeding and a year ago considerably upped your contributions much of your money has been invested for considerably less than 10 years, most has been invested for less than 5 years.

How much did you invest up to when you increased the contributions and how much since?

In the past year:
Index Linked Gilts 5+ years fund dropped by  40%
50:50 Global Equity fund has dropped by 6%
Non-gilt sterling fund dropped by 20%
Conventional Gilts 15+ years fund dropped by 40%

So your problem is that you are significantly invested in longer term bonds which have been extremely badly hit by the rise in interest rates and fall in UK bond prices of the past 6 months.  It would seem that until then your portfolio would have been performing reasonably well given its high bond allocation.  Sadly you started your increased contributions at around the top of the bond market.

Tony_J

I was a little vague when I said 5 years or more.  I'm currently 64, but don't intend to stop working soon.  But there are annual redundancies and I may have no choice.  Nonetheless I have savings that I could live on for a number of years and my intention with this fund (and another 2 I have) would be to use them for drawer down.  I think the forecasted retirement age I put was 70.

I'm afraid your last sentence went a bit over my head.  But thanks for the comment.  So as the drop is due to interest rate rises, I suppose I could expect further drops in the short term.  But would a reduction in the interest rate allow that part to recover.

Albermarle

Over 10 years the pension will have gone up and down more than once, but when you are contributing to it at the same time, it can  mask what is happening to some extent.
 Normally bonds/gilts are relatively stable investments, but we have seen some good growth in value of them over the last few years, followed by a big drop in the last year. The unusual behaviour ( up and down) is linked to a long period of ultra low interest rates/inflation, and no things have changed.

The balance of probabilities is that they have taken most of the hit they are going to take, but nobody knows for sure.

Tony_J

Linton said:

One factor you need to take into account is that  as you were drip feeding and a year ago considerably upped your contributions much of your money has been invested for considerably less than 10 years, most has been invested for less than 5 years.

How much did you invest up to when you increased the contributions and how much since?

In tax year 2021-22 I put in £14776
So far this tax year I put in £11308

Grumpy_chap

Linton said:

One factor you need to take into account is that  as you were drip feeding and a year ago considerably upped your contributions much of your money has been invested for considerably less than 10 years, most has been invested for less than 5 years.

Within considering that acceleration of contributions, it is worth considering that the recent higher contribution rates will, hopefully, be proven to have purchased "cheap" units.

I have a rather similar situation to the OP, from a transfer in 2019 followed by lower contributions, then accelerated contributions from August 2021 my current fund value is less than the total inflows (transfers plus contributions).  It is hard to do, but I am going to keep faith with my original plan, so the accelerated contributions will remain until the end of this tax year (March 2023) after which I will have burned all carry-forward contribution allowance and will then reduce contributions to the annual allowance.  I have to believe that the higher contributions are now buying me "cheap" units and the gains will therefore be generous and my next concern will be LTA.  

If it's not that, then it will be bad for me.  One thing I do have is an extra 15-years or so on the OP for my pension investment to make that big bounce back and produce the yields that are required.

Marcon

Tony_J said:

I guess the funds I'm in will hold the key, but these will be default funds.  I'm thinking I should hold off changing anything out of panic, I don't intend to be drawing on these funds for a while yet (5 years or more) and if I did want to change things, I wouldn't really know where to start.

Is this performance as awful as it seems to me.  Should I just stop looking at it and hope the financial world becomes more stable over time?

Indeed they do hold the key, regardless of whether they are default funds or ones you've specifically chosen.

If you look through the threads on this forum for the last few weeks, you will find plenty of people getting equally cold feet because (usually for the first time) they've noticed their fund has dropped in value. My reference to the 'first time' relates to the fact it's the first time they've noticed, not the first time the fund has dropped - amazing how many people just haven't clocked that funds fluctuate the whole time, some in a more extreme manner than others.

A knee jerk reaction to a short term loss such as switching funds locks in your losses, so is far from the universal answer.

You say you don't know where to start, so possibly some proper professional advice, based on a full fact find, would be no bad thing? A few lines on a forum never gives anything like an adequate picture.

Tony_J

Marcon said:

A knee jerk reaction to a short term loss such as switching funds locks in your losses,

That's a very good way to express what I meant. 

I would not be able to make an informed decision without advice.  Would it be worth seeking and paying for a financial advisor for this relatively modest amount.  Particularly as it is a work pension (salary sacrifice, so saving N.I), so I guess locked into what options the scheme allows.