High negative investment returns after charges.

MattMontreal

Hi all,

I'm new to pensions and at my last job, which I left a year ago, I contributed about £6k to a Fidelity pension. Recently I received a statement saying that I have about £5.4k left in my pension after "Investment returns after charges".

This amount - 10% - seems like a crazy amount to lose after a year, but is there something I'm missing about how these things work? Is that a normal amount?

Matthew

Dazed_and_C0nfused

Have you not seen the news?

MattMontreal

Can you be more specific?

NedS

It is completely normal for stock markets to swing by 20% (gains or losses) in a single year, and in extreme cases by much more. When we invest in pensions (and normally in the stock market), we are investing for the long term returns over a lifetime (normally in excess of 30 years), and over such long time frames, the returns are typically in the region of 10% per year - significantly better than the returns we would get from cash investments, hence why we take the short term risk - for the long term gains.

Another way to look at it is that this year, it will only cost you £5.4K to purchase the same amount of investments that you purchased last year, and that is a 10% saving to you which is great news for you right now.

Albermarle

A pension is basically a long term investment, with some tax benefits.

Within the pension your money is invested in stocks and shares, investment funds etc.
In the short term these can go up and down quite a lot ( 10% is not a lot), however in the longer term the historical trend is up. You hope/expect in the long run the investments will grow at least more than inflation.

If you read the paperwork from Fidelity, or have online access, there will be plenty of warnings such as 'Investments can go down as well as up'
You will have a choice of investment funds from Fidelity, but if you do not choose one your money will go into a default fund, that may or may not be the best for you. Could be a good time to gain some basic knowledge about pensions and investing.
Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)
Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)

Pat38493

Most other people saw similar losses in their pension during 2022 so far - this is not unusual.  In fact 10% is arguably quite good.

Pensions that are highly invested in equities, as mentioned above by NedS, will have quite high volatility over short periods (say less than 5-10 years).  

To look on the bright side, the money you are currently putting in to whatever pension you have today is buying more fund units per pound while the price is lower, so there is a strong argument that when markets are down, you should actually put more money into your pension fund.

Nearlyold

Not sure from the title of your post whether you are under the impression the negative return is down to the charges.

Whilst management charges are naturally a cost, the majority of the reduction in value will be the widely publicised general move downwards in investment values over the last year (hence the question "have you not seen the news?")

There have been many similar dips in value over the years usually followed by even higher rises at some point.

Unless your fund has done far worse than any other fund has by at least a country mile then there is nothing at the moment to unduly worry about.

MattMontreal

This is very helpful - thanks, all!

NedS

MattMontreal said:

This is very helpful - thanks, all!

The worst possible thing anyone could do is look at that 10% loss and think that's rubbish, what's the point in investing in a pension when I'm just losing huge amounts of money, when what you should be doing is the complete opposite and thinking this is great, pensions are on sale and I can buy more this year for 10% less than it was costing me last year (or rather invest the same amount, but get 10% more for your money).

We know it's hard when you see the value of your investments fall, but you have to adjust your mind set to see it as an opportunity to buy more at a reduced price which is a good thing.

The other way to view it is that to get £6000 in your pension pot, you only had to put in £4800 net and basic rate tax relief made it up to £6000 gross, so if it's dropped to £5400 in one year, you are still 12.5% up on the £4800 it cost you for those contributions.

MX5huggy

It is worth looking at and understanding the charges. There’s likely to be platform fees and fund fees. Find them in the documentation. They maybe reasonable or not. This will help you decide if you want to transfer the pension elsewhere (like any new employer scheme). 

bostonerimus

OP, Please, Please, Please! take a couple of hours to read about the basics of define contribution pensions and how your money is invested. Here's a bit of homework to get you started. Find out the names of the investment funds that you own inside your pension and tell us what they are. Also tell us the charges. We can then comment on your losses.