Beware... is your pension fund letting you down?

Savers near retirement must check now to make sure they don’t lose out

Prince Charles, it seems, is no fan of the pensions industry. Looking at the performance of a lot of the funds, you can see why.

Damning evidence, compiled by financial advice firm Bestinvest, names and shames the pension funds that have significantly and consistently disappointed. The “Spot the Dog Pension Edition” highlights those that have underperformed their benchmark, or peer group, by at least 10 per cent over three consecutive 12-month periods. Sadly, even with these filters in place, Bestinvest identified 113 pension funds, with combined assets of approximately £31bn, that have been serial underachievers.

David Smith, wealth management director at Bestinvest, says: “The number shocked us – £31bn in underperforming funds – and we have only scratched the surface. We hope that this will concentrate minds and persuade people that now is the time to review their pensions”.

“Consolidators” such as Friends Life and Phoenix, which have taken on funds from other insurers, are the main culprits. Friends Life had 23 funds in the doghouse, including the FL Reserve AP2, which returned 17 per cent less than the relevant Association of British Insurers (ABI) sector. This equates to a £97.90 return on a £100 investment over the three years, compared with the benchmark of £117.82 over the same period.

Skandia and Phoenix didn’t fare much better with 15 dog funds apiece, including Skandia Neptune Global Equity losing out to the benchmark by 24 per cent, while various funds from Scottish Widows featured 14 times. Other household names on the list are Prudential and Legal & General with seven poor-performing funds each.

Colin Tipping, group investment director at Friends Life, said: “Friends Life takes the oversight and governance of the funds that our customers invest in very seriously and we devote significant resource to this activity. Funds are monitored and governed to a strict set of criteria, and where a fund breaches that criteria, it is placed on a watch list with the aim of the fund manager resolving any performance issues”.

The obvious defence for individual fund managers is that they take a long-term view on markets, but Bestinvest has helped here too, labelling the “long-term laggards” that have delivered the very worst returns over 10 years. Once again Friends Life and Phoenix have been found wanting, but Abbey Life and Windsor also run several funds that have returned at least 20 per cent under the ABI sector averages.

To make matters worse, these pensions are all actively managed, which means investors are paying much higher charges for the service of supposedly skilled managers. Passive funds are cheap because they simply follow particular indices, rather than try to beat them. Many tracker funds are free to set up and cost less than  1 per cent a year to manage, compared with initial costs of 5 per cent with active funds and ongoing annual fees of at least 1.5 per cent.

Don’t assume you’re out of the woods if your fund doesn’t feature in the Bestinvest doghouse ; these funds represent the worst of the worst, so your money could still be stuck in pedestrian funds.

However, while you shouldn’t sit back quietly while your retirement plan suffers, there is a risk you could leave one fund that is just about to turn a corner and move into another that has already peaked. “It is often difficult for people to know what they should compare with what. A particular index might not be relevant if their fund invests in different areas, and even funds in the same sector might not be a good comparison if they take significantly more or less risk,” says Patrick Connolly of independent financial adviser (IFA) Chase de Vere.

Start by asking your pension provider for details of  the past performance of funds in which you are invested. You also need details of all the charges in case you’re facing the double whammy of an underperforming and high-cost pension. There is a lot of information online and you can get more help from IFAs.

If you do believe your fund is underperforming, it isn’t necessarily the case that you should get out. Transferring to a different provider can be a minefield in terms of exit penalties, or losing valuable benefits, bonuses or guarantees. If you are near retirement, you may not have time to recoup the costs, even if you do switch to a better-performing fund.

Many pension policies now offer a range of investment choices, so you could find a better place for your money without having to transfer.

“Only look to move elsewhere if your current pension has no suitable options or if you are paying much higher charges where you are,” says Mr Connolly.

You could also consider  consolidating your pensions into a single plan, or self-invested personal pension (Sipp), to choose from a wide range of investments. Sipps are not suitable for everyone, but if you are happy to take a more active role in your pension planning, they can be a great way to take control back.

Experts advise reviewing your pension investments every six or 12 months. If you have a long time until retirement, you can take more investment risk because you would be able to make up any short-term losses.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
A bartender serves beers
news
Arts and Entertainment
Daniel Craig and Rory Kinnear film Spectre in London
film
Life and Style
The finale at Dolce and Gabbana autumn/winter 2015
fashion
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003
    Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

    Our woman in Beijing builds a new relationship

    Britain's first female ambassador to China intends to forge strong links with growing economic power
    Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

    Courage is rare. True humility is even rarer

    Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
    Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

    Alexander McQueen's astonishing vision

    Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
    New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

    Dinner through the decades

    A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
    Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

    Philippa Perry interview

    The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
    Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

    Bill Granger's Indonesian stir-fry recipes

    Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
    Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

    Harry Kane interview

    The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
    The Last Word: For the good of the game: why on earth don’t we leave Fifa?

    Michael Calvin's Last Word

    For the good of the game: why on earth don’t we leave Fifa?