Is it worth transferring to my Stakeholder pension?

DJS005 · 10 October 2017 at 6:46PM

Hi there
I hope this thread is in the right place, I just hoped to get some thoughts on whether my thinking is right (or not)

I recently decided to transfer out of the smaller of my 2 DB pension schemes (leaving the other alone) and to put the money in a fund. As I had to take advice to do so, I saw an IFA and eventually when the process was complete, had a new wrap set up and the funds transferred in.

After paying the IFA's arrangement fee, the ongoing management costs of the fund are 0.95%pa platform fees and 0.9%pa advisor costs. I have been told to expect annualised returns of approx. 6% gross, or around 4% net of all fees. The fund is balanced, diversified low volatility.

Now comparing that to the performance of my small stakeholder pension, I can't help but wonder if the new money might be better off put in to that instead. It was set up ages ago (an original TSB scheme, which became Scottish Widows) and was largely forgotten about. Anyway, I decided to look in to it and got a login and password from SW in order to do that. This is what I have found on its fund value/growth

(there have been no regular contributions since 1997)

On 01/10/2002 it had a value of £9,109.21
On 01/10/2011 it had a value of £23,005.16
On 01/10/2017 it had a value of £47,301.44

I believe that unless you choose funds (and I never did), policies go into the Consensus (default) fund.

The annualised rate of return seems to average out at about 10%, net of fees, which of course are only 1%.

Am I missing something, or does this seem like the sort of return to expect from an average default stakeholder pension?

dunstonh · 10 October 2017 at 7:49PM

Stakeholder pensions are largely a niche option nowadays. Beaten on investment choice and charges by other options in most areas. However, some exceptions apply.

Now comparing that to the performance of my small stakeholder pension, I can't help but wonder if the new money might be better off put in to that instead.

How are you comparing performance?

t was set up ages ago (an original TSB scheme, which became Scottish Widows) and was largely forgotten about.

So that makes it expensive for a budget scheme and a not very good one at that.

Am I missing something, or does this seem like the sort of return to expect from an average default stakeholder pension?

The consensus fund is largely a benchmark follower. Not a good fund, not a bad fund. A typical stakeholder fund.

As to what to expect, its difficult to say. I compared that fund tfrom June 2012 on our investment option which is more expensive than the stakeholder. The consensus fund actually sits right between two of our options in terms of risk. So, I will give the figure against the one just above and the one just below. Over 5 years (to yesterday) the consensus fund grew by 67.22%. Our hybrid portfolio just above the risk level grew by 108.86% or 89.77% if just below. This is after charges. (and to give some more benchmarking, VLS60 was 7n.19% and VLS80 was 91.15% - similarly, VLS60 is just below and VLS80 just above in terms of risk)

Charges are a defined measure that you can easily calculate. Investment returns are an unknown. Cheaper does not mean better. Paying more does not mean better. Some people focus on low charges. Some people focus on investment potential.

zagfles · 10 October 2017 at 8:18PM

Looks like it's done reasonably well - charges do make a big difference to performance so it's worth trying to get lower fees, 0.95% platform and 0.9% adviser charge seems very high. Watch out for selectively quoted performance figures, choose the dates carefully and you can prove almost anything!

DJS005 · 10 October 2017 at 8:57PM

Thanks for the replies guys, but maybe I didn't make my question clear.

I guess what I was asking is what is the point in investing in a product that will return (I am told) 6% gross and be eroded by fees down to 4%pa, when I have an existing product (old and unfashionable though it may be) that has actually returned 10% pa on average after fees for well over 15 years?

dunstonh · 10 October 2017 at 9:03PM

I guess what I was asking is what is the point in investing in a product that will return (I am told) 6% gross and be eroded by fees down to 4%pa

Answered already in my post with the examples given (which are net of charges).

when I have an existing product (old and unfashionable though it may be) that has actually returned 10% pa on average after fees for well over 15 years?

Investment return projections have to be lower. The regulator insists on it. Even if the fund has a record of 20% a year since launch, it would still have to use the much lower figures in projections.

I wouldn't want to bet on the consensus fund returning double digits on average in future. It has done just over 9% a year in the last 5 years and that is a period of high growth with virtually no real negative periods. If we go back 10 years, it only grew by 66.48%. Nowhere near double digits.

zagfles · 10 October 2017 at 9:40PM

DJS005 wrote: »

Thanks for the replies guys, but maybe I didn't make my question clear.

I guess what I was asking is what is the point in investing in a product that will return (I am told) 6% gross and be eroded by fees down to 4%pa, when I have an existing product (old and unfashionable though it may be) that has actually returned 10% pa on average after fees for well over 15 years?

Also given that the RPI inflation rate is is now 3.9%, at 4% after charges it is hardly growing at all in real terms.

Returns are basically guesswork anyway - even past performance isn't always that reliable a guide. Might be worth posting on the Savings and Investment board - investment performance discussed more over there.

Is it worth transferring to my Stakeholder pension?

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