Is Your SIPP Pension Making Any Money?

Bostonerimus1

mad1_2 said:

JohnWinder said:

If you're taking first steps to understanding your investments I'd say your asset mix isn't terrible. Important to remember that start and end dates used for calculating returns can have a big effect; a 2% fall on one day at the start or end can change a 10% return into 12% or 8% if you change the start or end date by one day. We also have no idea what effect fees had on your return. While your assets don't seem to have done well recently they might do better than the rest of our mixes over the next six months. Short time periods are like that.

We don't know how 'smart' you are with personal investing, but you can judge by scanning the contents or reading sections in 'google books' of Tim Hale's book Smarter Investing. You'll then know of you should borrow it from your local library, as it will put you on an equal footing with your adviser.

Although the performance of your portfolio over a short period should not be used to judge it there are bits to question.

How does it help you to have <1% in property or index linked bonds? Diversification of assets is good, but those assets can do better than the others by only 1-15%/year for a short time. A 15% outperformance by property would boost your returns by < one hundredth of that ie 0.15%/year. If you were managing your own investments you simply wouldn't bother, so ask yourself and your adviser why they chose those for you. If you can find a reason other than it makes investing look too complicated for anyone but a professional, report back and tell us. And if you can't get a cogent reason, you've taken one step towards doing better yourself.

You also ought to be familiar with all the fees you're paying, directly and indirectly in fund management fees, and reduce those you can. Over the short term it's less important, but compounding means that if you're investing for another twenty years which you might be, fees are very important.

Thank you all for your comments - and to JohnWinder for a very helpful post.

I am currently paying a total annual charge of 1.93% to the financial advisors' company who invest my pension. This includes the use of the Quilter platform and their own fees.

I am not in any way 'smart' and would not consider investing my own pension. I am in awe of those who do this, but I think I would do more harm than good to my pension pot.

JohnWinder  I will ask the question about property and index linked bonds - thank you for pointing this out.

Just to clarify - I am not necessarily 'judging' the performance of my pension over such a short period of time. I am looking for a benchmark with others experience over this same time period. I am concerned that my pension has not grown at all over this time period and at some periods it was actually in a negative balance.

Thanks to all for your help so far.

I think you are right to be concerned and so the first thing you should do is understand the basics of how your pension is invested, you have already understood the fees and they are part of the reason the growth of your pension is so anaemic. So find out the specific funds that are inside your pension. There are plenty of resources on line that will explain the different types of investment funds that can be held within your pension. Armed with a little understanding I would then ask your pension advisors about their choices and if you are not happy you can ask them to make some changes...or you can think about DIY once you are more knowledgable and confident.

Pensions and investing can seem complicated and that's in part down to the vast number of options you have and a financial industry with a vested interest in making things seem complex so they can charge people fees and also to stroke their egos to make them feel they are doing something difficult. IT DOESN"T NEED TO BE COMPLICATED. I have just three investment funds in my self managed pension accounts, I don't trade just put a bit more money in every so often and will eventually start to sell them to take some income. I have consciously removed advisor fees and complications.

I don't want to be completely negative about financial advisors as many help people who are confused and provide a useful service. Your pension problem might just be one of communication (although the fees you are being charged does not endear your advisors to me) and when you voice your concerns you might be moved into a better returning set of investment funds more in line with your risk and return expectations.

mad1_2

MK62 said:

mad1_2 said:

JohnWinder said:

If you're taking first steps to understanding your investments I'd say your asset mix isn't terrible. Important to remember that start and end dates used for calculating returns can have a big effect; a 2% fall on one day at the start or end can change a 10% return into 12% or 8% if you change the start or end date by one day. We also have no idea what effect fees had on your return. While your assets don't seem to have done well recently they might do better than the rest of our mixes over the next six months. Short time periods are like that.

We don't know how 'smart' you are with personal investing, but you can judge by scanning the contents or reading sections in 'google books' of Tim Hale's book Smarter Investing. You'll then know of you should borrow it from your local library, as it will put you on an equal footing with your adviser.

Although the performance of your portfolio over a short period should not be used to judge it there are bits to question.

How does it help you to have <1% in property or index linked bonds? Diversification of assets is good, but those assets can do better than the others by only 1-15%/year for a short time. A 15% outperformance by property would boost your returns by < one hundredth of that ie 0.15%/year. If you were managing your own investments you simply wouldn't bother, so ask yourself and your adviser why they chose those for you. If you can find a reason other than it makes investing look too complicated for anyone but a professional, report back and tell us. And if you can't get a cogent reason, you've taken one step towards doing better yourself.

You also ought to be familiar with all the fees you're paying, directly and indirectly in fund management fees, and reduce those you can. Over the short term it's less important, but compounding means that if you're investing for another twenty years which you might be, fees are very important.

Thank you all for your comments - and to JohnWinder for a very helpful post.

I am currently paying a total annual charge of 1.93% to the financial advisors' company who invest my pension. This includes the use of the Quilter platform and their own fees.

I am not in any way 'smart' and would not consider investing my own pension. I am in awe of those who do this, but I think I would do more harm than good to my pension pot.

JohnWinder  I will ask the question about property and index linked bonds - thank you for pointing this out.

Just to clarify - I am not necessarily 'judging' the performance of my pension over such a short period of time. I am looking for a benchmark with others experience over this same time period. I am concerned that my pension has not grown at all over this time period and at some periods it was actually in a negative balance.

Thanks to all for your help so far.

Another option could be a Managed SIPP, where the pension platform does all the investing for you......

Vanguard do one (though they aren't the only option)......which costs 0.3%pa for the management charge, plus 0.15% (capped at £375) for the account charge......then there are the fund fees, but you don't pay these directly (they are taken out of the fund(s)), and in any case are payable on all platforms. So this would cost you c£830pa, compared to c £3550pa.......

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/we-do-it-for-you

Thanks MK62 - a managed SIPP is what I currently have. I'll have a look at the Vanguard option.

Albermarle

mad1_2 said:

MK62 said:

mad1_2 said:

JohnWinder said:

If you're taking first steps to understanding your investments I'd say your asset mix isn't terrible. Important to remember that start and end dates used for calculating returns can have a big effect; a 2% fall on one day at the start or end can change a 10% return into 12% or 8% if you change the start or end date by one day. We also have no idea what effect fees had on your return. While your assets don't seem to have done well recently they might do better than the rest of our mixes over the next six months. Short time periods are like that.

We don't know how 'smart' you are with personal investing, but you can judge by scanning the contents or reading sections in 'google books' of Tim Hale's book Smarter Investing. You'll then know of you should borrow it from your local library, as it will put you on an equal footing with your adviser.

Although the performance of your portfolio over a short period should not be used to judge it there are bits to question.

How does it help you to have <1% in property or index linked bonds? Diversification of assets is good, but those assets can do better than the others by only 1-15%/year for a short time. A 15% outperformance by property would boost your returns by < one hundredth of that ie 0.15%/year. If you were managing your own investments you simply wouldn't bother, so ask yourself and your adviser why they chose those for you. If you can find a reason other than it makes investing look too complicated for anyone but a professional, report back and tell us. And if you can't get a cogent reason, you've taken one step towards doing better yourself.

You also ought to be familiar with all the fees you're paying, directly and indirectly in fund management fees, and reduce those you can. Over the short term it's less important, but compounding means that if you're investing for another twenty years which you might be, fees are very important.

Thank you all for your comments - and to JohnWinder for a very helpful post.

I am currently paying a total annual charge of 1.93% to the financial advisors' company who invest my pension. This includes the use of the Quilter platform and their own fees.

I am not in any way 'smart' and would not consider investing my own pension. I am in awe of those who do this, but I think I would do more harm than good to my pension pot.

JohnWinder  I will ask the question about property and index linked bonds - thank you for pointing this out.

Just to clarify - I am not necessarily 'judging' the performance of my pension over such a short period of time. I am looking for a benchmark with others experience over this same time period. I am concerned that my pension has not grown at all over this time period and at some periods it was actually in a negative balance.

Thanks to all for your help so far.

Another option could be a Managed SIPP, where the pension platform does all the investing for you......

Vanguard do one (though they aren't the only option)......which costs 0.3%pa for the management charge, plus 0.15% (capped at £375) for the account charge......then there are the fund fees, but you don't pay these directly (they are taken out of the fund(s)), and in any case are payable on all platforms. So this would cost you c£830pa, compared to c £3550pa.......

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/we-do-it-for-you

Thanks MK62 - a managed SIPP is what I currently have. I'll have a look at the Vanguard option.

Do not forget that part of the problem is that you wanted lower risk investments. Typically these grow more slowly than higher risk ones. ( plus as described in a previous post low risk investments have performed particularly poorly in recent times)
On the other hand higher risk investments can drop alarmingly in value during stock market turbulence.
You have to be clear in your mind that if you want higher growth you need to go for more high risk funds ( or at least medium risk) and then be prepared for a more roller coaster ride.
Of course this is as well as getting those fees down.

LHW99

Also, it is unwise to transfer just because your investments seem to have done less well than others may have. No one can tell if the next 10 years will be the same as the last 10, but you do know that if you sell funds when they are down you are baking in any loss, and incurring selling fees (and buying fees if you then re-invest).

There are times when that is the correct move, but doing it too often isn't good - it's a reason why you would have the backup of an IFA, to check if its just the part of the market that has dropped, or if something isn't right with the investment itself (style gone out of fashion etc)

barnstar2077

One option might be to contact them and say that you have been advised that their charges are too high, and as you don't really want the hassle of moving away from them, can they do something about it for you. 

Then assuming you get a reasonable response, possibly ask them to move you into more medium risk funds.  Being too cautious doesn't always deliver the desired outcome.  

But, as others have said, you will be much better off reading up on things, so you know what you want yourself.

PensionCraft is a youtube channel I am often recommending for their simple to understand and interesting videos. 

JohnWinder

'I am not in any way 'smart' and would not consider investing my own pension. I am in awe of those who do this, but I think I would do more harm than good to my pension pot.'

'I guess my next question is for recommendations for other companies who can manage my funds for me....I do take on board all the excellent comments about me managing my own funds, but I do find this extremely daunting...' 

We don't know whether you alone should be in charge of your investments, or collaborate with an adviser but you should know why it's easier than it's ever been to DIY. Two developments occurred since, or while, you formed your impression of the arcane world of investing.

The first was high quality ready-made funds popped up, such as yours, which means investors no longer have to be smart enough to know which companies' shares they should own, rather they can just buy a lot in one fund; indeed they can buy both shares and bonds from all over the world in one fund and in different proportions if they want to. Furthermore, these products are readily accessible to the everyman, without intermediaries. It's the commodification of investment products; they're everyday commodities like laundry detergent which you just walk in and take from the shelf with little difference between them and competing on price. That has bred a new customer base, so of course many not so high quality ready-made funds have also appeared.

The other development, starting in US 25 years ago but now firmly here, are a few books and now many videos etc explaining to the everyman how a simple approach to investing is better than most others. It relies on the notion that you invest broadly in the whole market, rather than trying to choose this country's stocks or that industry's bonds as the future winners. Investing that way means that you get exactly your share of the whole market's profits; you can't do worse than the average or better, so you need to be satisfied with what the market provides (and during your 15 years of retirement it might be very unsatisfactory or quite good). But it has now been shown time and again, that you will likely not do better with any other investing approach than this simple 'buy the whole market' approach. Your funds have somewhat 'bought the whole market', but not in the proportions that represent the market; over the longer term your adviser's approach has most often not been the better approach (for the investor).

To take just one example of a DIY 'commodity' not too unlike your mix, Vanguard's VLS60 fund. It has risen about 10% since February last year. That alone doesn't make it a better choice than your funds, but what does is that it better represents the 'whole market', and it's probably lower cost than yours. 

As a first step your solution ought not be 'find another company who can manage my funds for me' because there's no guarantee you'll be better off. We were dealt a bad hand when politicians moved us from DB to DC pensions without education, and some of us have jumped straight in to the deep end and found sharks lurking. Is there room for another metaphor there? At least get yourself a flotation ring.

SteveBLFC64

Following this thread with interest as I'm in a similar situation, as in turned 60 earlier this year, but looking to retire at 65, therefore needing to bridge the two-year gap until the SP kicks in. However, I do have the bulk of my pension in a DIY SIPP, and looking back can see it made approx. 10% in that time - it was 12% just a few weeks back, but with the current volatility of the stock market, that's how quickly valuations can change! 

I guess it's definitely not for everyone, but I think with a little education I'm sure many people could reasonably confidently do better than many FA/IFAs out there, at least from what I see with the posts on this forum. Perhaps where some people may need them is for assistance with specific tax-related situations, but, even then, not so sure they'd be needed on an ongoing basis, and to the point where they need to take a slice of someone's pension pot over many years.

With regard to risk, my view is that I'm hopefully still expecting to be investing over the long-term (perhaps 30yrs+ ?), therefore the majority of my SIPP is still in high risk funds, and it's only over the next few years, in the lead-up to starting drawdown, that I'll start to lower the risk of some of them, but will still have a reasonably large percentage in the higher risk ones.

Bostonerimus1

SteveBLFC64 said:

Following this thread with interest as I'm in a similar situation, as in turned 60 earlier this year, but looking to retire at 65, therefore needing to bridge the two-year gap until the SP kicks in. However, I do have the bulk of my pension in a DIY SIPP, and looking back can see it made approx. 10% in that time - it was 12% just a few weeks back, but with the current volatility of the stock market, that's how quickly valuations can change! 

I guess it's definitely not for everyone, but I think with a little education I'm sure many people could reasonably confidently do better than many FA/IFAs out there, at least from what I see with the posts on this forum. Perhaps where some people may need them is for assistance with specific tax-related situations, but, even then, not so sure they'd be needed on an ongoing basis, and to the point where they need to take a slice of someone's pension pot over many years.

With regard to risk, my view is that I'm hopefully still expecting to be investing over the long-term (perhaps 30yrs+ ?), therefore the majority of my SIPP is still in high risk funds, and it's only over the next few years, in the lead-up to starting drawdown, that I'll start to lower the risk of some of them, but will still have a reasonably large percentage in the higher risk ones.

Great comments. One thing though FA/IFAs are not investment advisors and they will often subcontract the portfolio building and maintenance to specialized firms. The portfolios they produce are often, IMO, far too complex and expensive. You have a good perspective on what you need to do to DIY and I believe you will do ok.

Albermarle

SteveBLFC64 said:

Following this thread with interest as I'm in a similar situation, as in turned 60 earlier this year, but looking to retire at 65, therefore needing to bridge the two-year gap until the SP kicks in. However, I do have the bulk of my pension in a DIY SIPP, and looking back can see it made approx. 10% in that time - it was 12% just a few weeks back, but with the current volatility of the stock market, that's how quickly valuations can change! 

I guess it's definitely not for everyone, but I think with a little education I'm sure many people could reasonably confidently do better than many FA/IFAs out there, at least from what I see with the posts on this forum. Perhaps where some people may need them is for assistance with specific tax-related situations, but, even then, not so sure they'd be needed on an ongoing basis, and to the point where they need to take a slice of someone's pension pot over many years.

With regard to risk, my view is that I'm hopefully still expecting to be investing over the long-term (perhaps 30yrs+ ?), therefore the majority of my SIPP is still in high risk funds, and it's only over the next few years, in the lead-up to starting drawdown, that I'll start to lower the risk of some of them, but will still have a reasonably large percentage in the higher risk ones.

My only comment would be that when DIY your pension, you need to keep abreast of changes in pension/tax legislation. Reading this forum is helpful in this respect, and for sure has helped me.

Hoenir

SteveBLFC64 said:

I guess it's definitely not for everyone, but I think with a little education I'm sure many people could reasonably confidently do better than many FA/IFAs out there,

"Investing" isn't a little topic though. Investing is becoming gamified. Detached from the real world of business.