Pension statement

red_tiger_2

Hi,

I just received my pension statement from Virgin stakeholder and they tell me its down 8% due to the unit price dropping. I have around £20K inversted, but was very disappointed to see the latest results. I am 39 years of age and wondering whether I should transfer the pension, or start saving in an ISA or keep going with my pension and just expect that it should pick up?. I have about £300 to save a month.

Any advice?, many thanks.

baby_boomer

If you are a 40% taxpayer then it costs you only 60p to buy £1 in your pension fund which will eventually be used to buy an annuity for life.

At aged 39 it makes sense to continue to save regularly into the stock market, even if you used an ISA. With an ISA you don't get the tax relief at the time of your contribution but the income from it is currently tax free at retirement and the capital you save also remains yours on retirement - so you can pass it to your heirs if you have anything left when you die.

£300 a month on top of £20K saved isn't going to provide a huge retirement income [you know that from your statement], but - investment returns being equal - you would guarantee more income with a pension than an ISA.

red_tiger_2

thanks baby_boomer. Don't think I'm ever going to rich, just trying my best to make some savings. Do you think my pension statement is fairly typical in falling recently?. It had been growing quiet nicely, but has recently made a drop. I guess you have to leave it long term and expect a zig zag over the period.

dunstonh

I just received my pension statement from Virgin stakeholder and they tell me its down 8% due to the unit price dropping.

Totally expected. You are invested in a medium/high risk fund and 8% is nothing. The same fund would have dropped 45% back at the start of the decade.

but was very disappointed to see the latest results.

Why are you investing in a medium/high risk fund if you dont accept the periodic losses that can occur (noting that 8% is more in line with cautious loss potential).

I am 39 years of age and wondering whether I should transfer the pension

The pension hasnt lost a penny. The FTSE tracker fund you chose has. If you choose the same fund in another pension you will get similar performance.

The virgin stakeholder is pretty naff but your reasons for querying it are more to do with how you have it invested at the moment and your comments suggest either you are invested above your risk profile or you need to learn a bit more about how investments work or more likely a bit of both of those.

red_tiger_2

thanks for your comments. Do you know how you can check to see how the FTSE tracker funds are doing and what they are likely to do in the future?.
Seems a bit pointless paying into something that may drop again?

EdInvestor

A FTSE tracker fund tracks the FTSE 100 stockmarket index, the ups and downs of which are reported in the papers very day.

Over the long term, equity investment (ie in shares) has beaten all other forms of investment hands down for decades.

If you put your money into cash, it won't drop in value - but nor will it rise.Indeed over the long term it will fall due to to the effect of inflation.

I'm afraid there's no way to avoid taking a bit of risk if you want adequate money in retirement.The best thing to do is to learn how to minimise its bad effects.

jamesd

You use investments that go up and down because those are the ones that have the greatest long term growth potential. There's a general rule: the greater the growth you want long term, the greater the short term (say over three months to three years) ups and downs (called volatility, or sometimes risk) will be. During really bad years you might see it drop by 40%, on average it has increased by about 12% a year. Before costs. Savings accounts might get you an average of 5% but with a guarantee that you won't lose cash. But the price is that you're only getting 1-2% above inflation, so you're only growing the money slowly, while the investments might grow at four times that after inflation rate.

FTSE trackers are what people who don't care about their investments and retirement income and don't want to be bothered with looking at them might choose. That's very common and for people with that view it's OK, though not good to use just the UK's FTSE. Should ideally include some non-UK areas as well. Using more areas also decreases the short term value changes because different areas move up and down at different times, in general. Different areas meaning both different parts of the world and different types of company.

Personally, I do care and want to learn about investments and select ones that I think will do better, so I consider the Virgin stakeholder pension to be rubbish, because it has only one investment choice. But still, you're way ahead of others in having one at all, so this isn't intended to be critical of you, just the limited choices this pension product offers.

With 300 a month you can get a vary large range of excellent personal pensions or SIPP pensions to choose from. Many of those offer a broad range of funds, with the better ones offering a few thousand at least. Three quarters of those don't perform well enough to be interesting but the rest let you put together a mixture of five to fifteen investment funds that'll almost certainly do better in both long term growth and reduced volatility than just using a FTSE tracker.

Some choices for you to make are:

1. Are you interested in learning about how to pick funds yourself?

2. Are you interested in checking the funds every six months to a year to make sure that they are still doing OK (manager changes mean that they can change performance). Market ups and downs are normal and not problematic, this is just to check that the fund hasn't become a bad one in its area, compared to others that you could switch to.

3. If not, are you happy to have an IFA do this work for you in exchange for the 0.5% of the total pension pot value? Currently Virgin is keeping that itself. Alternatively, you could pay an IFA a fee and reduce the annual cost by up to 0.5% but this may not pay at your current fund value if you want the IFA to do the annual reviews. You'd also probably pay the IFA 1-3% of the starting value to get the initial setup work done - finding out how much volatility you're after (accept at least 20%, better 30% is what I suggest) and selecting the initial mixture of funds to address that.

At 300 a month you're putting away enough that you probably won't have trouble getting a good pension income. An IFA would also estimate that likely income so you can adjust this if it's not fairly sure to meet your target income - so could you using various estimating tools.

dunstonh

For the contribution involved, a virgin stakeholder is an awful product. Its not cheap and it only has 3 funds (2 until recently and one of those is cash hence why I assumed tracker).

An IFA could wipe the floor with this product with lower charges (if charges are a priority) or a better investment spread (if investment potential is a priority).

Going DIY would offer cheaper still but you would need to taken on responsibility for choosing the investment spread.