So do you know where your pension cash goes?

You can have a say in how your money is invested, writes Melanie Bien
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The Independent Online

Ask anyone in the street who their pension provider is and they might just be able to tell you. But ask them which funds their money is invested in and you are likely to draw a blank.

Ask anyone in the street who their pension provider is and they might just be able to tell you. But ask them which funds their money is invested in and you are likely to draw a blank.

Many of us don't even realise we have a choice: we assume the pension fund manager makes these decisions on our behalf. After all, surely this is what our annual fee is for?

But all money purchase schemes do offer a choice. And if you don't make a decision, you end up with the default option. This will result in your money being invested in a cautious, middle-of-the-road, balanced managed fund or, even mor e conservatively, an index tracker.

The default option is rarely the best one. A single type of fund can't suit all the different investors: it may be too risky for your own tastes or not exciting enough. When you near retirement, your investments will be shifted into safer havens such as corporate bond funds and gilts. While it is wise to take on less risk as you get older, again, these may not suit your particular needs.

Many pension holders who haven't got much investment experience end up with the default option because they don't know any better. However, Norwich Union, the UK's largest insurer, is hoping that its decision to launch a range of 21 new pension funds will raise awareness among clients and encourage them to think about where their money is invested.

The insurer's new range is certainly extensive, covering all levels of risk from low/ medium to high. Fourteen of the funds draw on the expertise of external managers, including Fidelity, Investec, Newton and Schroders. There are also three "unfettered" fund-of-funds, letting investors spread risk over a wide range of funds.

Norwich Union is also providing access to three of its own products - the Corporate Bond, Managed High Income and World Leaders funds. And investors who are comfortable with high risk will now be able to opt, as well, for Merrill Lynch's UK Dynamic fund.

This breadth of choice should mean that the pension accurately meets the holder's needs.

"We anticipate that the increased diversity of investment will prove to be popular with customers, giving them a wider degree of choice to meet their needs," says Iain Oliver, the head of pensions development at Norwich Union.

"The addition of these new funds is a significant step in the development of our pension offering. They have been selected to complement the existing range, giving access to a greater range of investment classes and policies from Norwich Union and a selection of managers."

But how do pension holders, most of whom have little knowledge of investment, pick the right funds? Could too much choice be more of a hindrance than an advantage?

Tom McPhail, the pensions research manager at independent financial adviser Hargreaves Lansdown, says the information we need is out there - we just have to look for it.

"There is a shed load of data about pensions on the internet, on websites such as our own or TrustNet's," he says. "Many intermediaries put a lot of qualitative analysis about funds into the public domain. You have to remember that you won't automatically get this from the pension provider."

He recommends that investors take stock of their pension fund at least once a year. A useful prompt is the legal obligation on providers to send each scheme member an annual statement setting out where their money is invested, how much their fund is worth at that time and what they can expect to get on retirement.

Generally, there are no restrictions on switching within your fund, although this hasn't always been the case.

Some providers still charge members a fee, usually about 1 per cent of the fund, so find out if this is the case. If so, you may decide it's not worth moving your investments around.

If you have a stakeholder, you won't be charged for switching.

While there is little point switching on a regular basis for the sake of it, it is worth considering moving your money if you've been stuck in an under-performing fund for some time. Mr McPhail points out that billions of pounds of pension money is tied up in funds that perform consistently poorly.

"It's time people took an interest in where their fund is invested, because the difference between good and bad performance is huge."

www.hargreaveslansdown.com; www.trustnet.com

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