Pension Investment Performance

magd36

I started a pension in 2015 which has had total growth of 5% (current growth/total invested). I received 4%fixed in a single year on a savings account just matured. Are pensions that are invested really worth the risk or does the government simply need people to invest? I won’t be surprised if the growth goes negative but just think it’s terrible these risks are taken with pensions. Yeah it could go up but it could also go down. 8 years is a reasonable amount of time and it hasn’t even matched inflation.

eskbanker

The key consideration for questions like this is what specifically are you invested in?  Fees can also make a difference so which provider and you with?  And when do you anticipate needing access to the money?

magd36

eskbanker said:

The key consideration for questions like this is what specifically are you invested in?  Fees can also make a difference so which provider and you with?  And when do you anticipate needing access to the money?

It’s a standard company run standard life pension scheme. Relatively low fees and shouldn’t be high risk. In terms of when the money will be needed it will be different for everyone based on their age. My point is that 8 years should be long enough to match inflation. Fortunately, I don’t have a specific time I need to take it so can wait if the performance is poor but not everyone can.

eskbanker

magd36 said:

It’s a standard company run standard life pension scheme. Relatively low fees and shouldn’t be high risk

But the question remains: which specific investments have you gone for within the scheme?

magd36 said:
In terms of when the money will be needed it will be different for everyone based on their age. [...] Fortunately, I don’t have a specific time I need to take it so can wait if the performance is poor but not everyone can.

Many schemes incorporate some sort of lifestyling that entails derisking towards drawdown, so it is true to say that those close to needing access should plan accordingly, but conversely those who aren't have the luxury of time.

magd36 said:
My point is that 8 years should be long enough to match inflation.

Again there's a dependency on what you're invested in, but many eight year periods will match inflation, but certainly not all of them.

magd36

I just selected a balanced fund. It’s a mix of various things equities, bonds, property. It’s currently split into 3 parts {40% growth, 40% low risk, 20% secure). My point is the average person shouldn’t need to understand markets and risk their pension. There just seems no alternative.

eskbanker

magd36 said:

I just selected a balanced fund. It’s a mix of various things equities, bonds, property. It’s currently split into 3 parts {40% growth, 40% low risk, 20% secure). My point is the average person shouldn’t need to understand markets and risk their pension. There just seems no alternative.

Pensions involve long term investing, and this inevitably entails ups and downs along the way - the alternative would be to save in cash form, but the real terms returns would be abysmal, so there'd be a much smaller pot at the end.

magd36

That’s what we keep getting told but I don’t think the evidence that cash would’t have out performed this fund over the last 8 years is there. The so called secure fund has fell 2.5% over the last 3 months. I think there should be an option for those tha Want the security (especially in later years)

Bostonerimus1

magd36 said:

I just selected a balanced fund. It’s a mix of various things equities, bonds, property. It’s currently split into 3 parts {40% growth, 40% low risk, 20% secure). My point is the average person shouldn’t need to understand markets and risk their pension. There just seems no alternative.

This is another example of owning a DC pension with a DB mentality. Now that Defined Benefit pensions have been largely replaced with Defined Contribution pensions all the risk has been moved from the employer/insurance company to the employee. It is therefore the responsibility of the employee to understand how their money is invested and how much they are paying in fees. OP you have done more than many by actually looking at your balance and understanding it. That's the first step towards control. Your asset allocation information is still a bit vague and I don't fully understand the growth figures you gave in your original post, but I imagine that falls in equities and bonds brought on by Covid, Ukraine and Liz Truss have hurt your pension balance. You should have seen some recovery in the equity allocation though and maybe fees are hurting you so investigate those.

For some comparison, since 2015 something like Vanguard's VLS40 fund which has 40% equities has averaged about 4% annual gain for a total gain of about 37% over the last 8 years. Higher equity allocations have done better; I've had roughly 85% equity, 15% bonds in my defined contribution pension, mostly in low cost index funds, and it's investment gain has been 8% annual average which is a cumulative 85% total gain and is very similar to just putting the money into VLS80.

DoublePolaroid

magd36 said:

That’s what we keep getting told but I don’t think the evidence that cash would’t have out performed this fund over the last 8 years is there. The so called secure fund has fell 2.5% over the last 3 months. I think there should be an option for those tha Want the security (especially in later years)

Only a time traveller can make decisions with the benefit of hindsight. 

You may (or may not) find this video illuminating. 

magd36

Bostonerimus1 said:

magd36 said:

I just selected a balanced fund. It’s a mix of various things equities, bonds, property. It’s currently split into 3 parts {40% growth, 40% low risk, 20% secure). My point is the average person shouldn’t need to understand markets and risk their pension. There just seems no alternative.

This is another example of owning a DC pension with a DB mentality. Now that Defined Benefit pensions have been largely replaced with Defined Contribution pensions all the risk has been moved from the employer/insurance company to the employee. It is therefore the responsibility of the employee to understand how their money is invested and how much they are paying in fees. OP you have done more than many by actually looking at your balance and understanding it. That's the first step towards control. Your asset allocation information is still a bit vague and I don't fully understand the growth figures you gave in your original post, but I imagine that falls in equities and bonds brought on by Covid, Ukraine and Liz Truss have hurt your pension balance. You should have seen some recovery in the equity allocation though and maybe fees are hurting you so investigate those.

For some comparison, since 2015 something like Vanguard's VLS40 fund which has 40% equities has averaged about 4% annual gain for a total gain of about 37% over the last 8 years. Higher equity allocations have done better; I've had roughly 85% equity, 15% bonds in my defined contribution pension, mostly in low cost index funds, and it's investment gain has been 8% annual average which is a cumulative 85% total gain and is very similar to just putting the money into VLS80.

I’m sure you’ve done great but you’ve kind of proven my point. There’s no way the average guy would have enough knowledge to understand your post never mind pick funds. I think my experience is far more the norm than yours. I can assure you the fees are very low (0.538% total charge). I know this sounds paranoid but it feels like these large pension funds are a sink whole to enablle knowledge investors to profit. I just want safe funds that match inflation. Is that too much to ask.

magd36

DoublePolaroid said:

magd36 said:

That’s what we keep getting told but I don’t think the evidence that cash would’t have out performed this fund over the last 8 years is there. The so called secure fund has fell 2.5% over the last 3 months. I think there should be an option for those tha Want the security (especially in later years)

Only a time traveller can make decisions with the benefit of hindsight. 

You may (or may not) find this video illuminating. 

I’ve now got the opportunity to put things to the test. Assuming nothing too unexpected, I’m able to put a 5 figure sun in fixed interest accounts over the next 5 years. I intend to give the same amount to a financial advisor for the same duration. All things being equal we’ll see the results in time.