Your worst personal nightmare; PENSIONS

Choosing a personal pension from the myriad schemes available is a nightmare. The information with which to make an informed choice is simply not available to the general public, which is left with two options.

One is to put on a blindfold and stick a pin in a list of personal pension plans. The other is to seek the advice of an independent financial adviser and hope that he or she is competent.

While the first option is a lottery, the second may be equally so. The savings industry's favourite caveat - past performance is no guarantee for the future - is particularly true in the long-term world of pensions. Funds that put all their assets in equities are bound to do well in a bull market. However, they may not perform well in a falling market and few would bet against a bear market in the next 20 years.

Even comparisons of the past performances of personal pension funds are fraught with difficulty and may not necessarily be meaningful. Individual fund performance varies considerably depending on the time scale looked at. It may also alter suddenly if the fund manager leaves.

The performance table of the largest unit-linked funds (right) also shows how each fund ranked over the past five years, the right hand figure representing the decile (10 per cent) in which it was placed.

A key factor in the choice would be a consistent performance over the years. But when judging future performance additional research is needed. For example, the actuaries Bacon & Woodrow interview top-performing managers to see if their strategies are likely to produce similar results in the future. From this research is drawn a list of favoured managers.

But fund performance is only one element of a confusing equation. There is also a bewildering array of charges to consider and the suitability to an individual's future working pattern. And there is no guarantee that the potential buyer is going to get the right advice - as the projected £2bn compensation bill for the personal pensions transfer scandal showed.

If you decide on a personal plan you will need to choose between a "unit- linked" scheme, which is riskier but generally more profitable, and a "withprofits" plan, which is safer but not so lucrative. With-profits schemes, which guarantee a relatively small return each year and a large "terminal bonus", follow a more conservative investment strategy. But charges are weighted towards the larger contributors so they are better value for smaller investors.

Because terminal bonuses have been falling, so has the popularity of with-profits schemes.

With unit-linked plans, the value of the plan varies day by day as the value of the units fluctuates. For someone with less than 10 years to retirement, there is clearly a greater risk with this type of plan since the final value is fully exposed to adverse market movements.

On the other hand, someone with, say, 30 years to retirement is likely to get a better return with a unit-linked plan. It is also possible to switch between unit-linked and with-profits schemes within most pension plans.

Unless the law changes, your income in retirement will be largely determined by the value of the annuity you can buy. And that depends on the prevailing interest rates at the time. The best you can hope for is to pick a consistent fund that at least matches the performance of the FT-SE All share index.

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

Arts and Entertainment
Supporting role: at the Supreme Court, Rhodes was accompanied by a famous friend, the actor Benedict Cumberbatch
booksPianist James Rhodes on the extraordinary legal battle to stop the injunction of his memoirs
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
filmDheepan, film review
Steven Gerrard scores for Liverpool
peopleComedian star of Ed Sullivan Show was mother to Ben Stiller
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
George Osborne became Chancellor in 2010
peopleChancellor accused of reneging on pre-election promise
Arts and Entertainment
The pair in their heyday in 1967
Lena Headey plays Cersei Lannister in Game of Thrones
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
    Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

    Laughter, but no tears, as Letterman takes his bow after 33 years

    Veteran talkshow host steps down to plaudits from four presidents
    Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

    Hozier's 'blasphemous' song takes Novello award

    Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
    Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

    Join the tequila gold rush

    The spirit has gone from a cheap shot to a multi-billion pound product
    12 best statement wallpapers

    12 best statement wallpapers

    Make an impact and transform a room with a conversation-starting pattern