Want to know if your pension fund provides good value for money?
We've analysed the performance of some of the UK's largest workplace pension funds, together containing more than £86bn of UK retirement savers' money, to see which are doing well for investors, and which have failed to perform.
Millions of UK workers may be losing out on retirement savings due to underperforming default pension funds, with nearly 90% lagging behind standard benchmarks.
If you’re in a workplace pension, it’s time to check your fund’s performance and fees to ensure it’s aligned with your retirement goals. Switching to a better-suited fund could make a big difference in your future financial security.
What this chart shows
The following chart is an overview, designed to give you a sense of just how much performance varies – even within the boundaries of different risk-rated categories. To see the exact funds these figures relate to, scroll to the tables in the next section below.
What does 0/40/60/80+ equities mean?
We've grouped some of the UK's largest, open, workplace pension funds by the proportion of the fund that's invested in company shares – equities. The lower the proportion of equities, the lower the associated risk level. By doing this, it's possible to measure like-with-like and apply a common
How to use the chart
This is an interactive chart. Click through each category to view the performance of the largest funds from each provider.
The following tables compare the performance of some of the UK's largest individual pension funds – measured by the total value of the assets under management (AUM) – offered by the UK's largest workplace pension providers. We have only included funds with at least 5 years' returns and which are currently open to new joiners.
We have not selected by ‘the best’ or ‘the worst’ performing. That means that there are funds offered by these providers which return higher and lower results. In most cases, though, they are funds that contain only small amounts of investors' money and are therefore the default funds the vast majority of pension savers are invested in.
The providers we've looked at are:
You'll notice that results are separated into categories defined by the proportion of equities within those funds. That's done to ensure we are comparing ‘apples with apples' – in other words, funds that have similar objectives and are targeting similar outcomes for people with similar appetites for risk.
By taking the largest funds, we’re able to cover funds that apply to large numbers of investors, and make this research as relevant and useful to as many investors as possible.
More than 90% of those invested in workplace pensions are invested in whichever fund is designated the ‘default’ fund under the terms of their particular workplace scheme. It’s reasonable to assume, therefore, that by choosing to look at the largest funds, we are analysing those most likely to be default funds.
In many cases, these funds cover the majority of workplace pension assets under management by a provider. In the case of Nest, the UK’s largest workplace pension provider, 99% of Nest members are enrolled in the funds we have analysed. The People’s Pension funds we have included are used by 98.61% of the membership.
Those two brands alone look after retirement savings for 17.5 million people.
Collectively, the funds we’ve analysed in this piece of research encompass more than £86bn of UK retirement savings in workplace pensions.
Funds are divided into categories which are defined by the proportion of the fund that is invested in equities. Equities are considered to have more risk attached to them than other assets, such as UK government and corporate bonds, and therefore determine how much risk each fund is exposed to, and what kind of returns the fund managers are aiming to achieve.
All funds we’ve covered fit into one of the following categories:
By using categories, it’s possible to see how different funds have performed in relation to other funds with similar aims.
Use of benchmarks
In addition, we’ve also measured the performance of these funds against a benchmark for each risk-category so that it’s possible to see, not just how funds performed in relation to the other funds analysed in this research, but also against a common comparison point, based on a much larger sample of funds. They represent a certain part of the market.
The benchmarks used here are defined by Morningstar in all cases, except for the 0-35% equities funds, for which we’ve used the FE Fund Info benchmark for PN Mixed Investment 0-35% equities.
That said, not all funds within a category will have the same objectives. Some fund managers will be using other benchmarks, such as returns a certain percentage above the Consumer Price Index, or to beat a particular index such as the FTSE 100, for example. Some have very vague measures of success, such as ‘the prospect of capital growth over the long term’, which is why we have not used funds’ own objectives as our main benchmark.
To view fund objectives, you’ll need to view the fund factsheet providers are obliged to produce for each fund.
Good questions to ask yourself are:
We always recommend seeking help from an Independent Financial Advisor or Independent Financial Planner if you have any questions around which funds or what type of pension to invest in, and how to plan for a comfortable retirement.
There are a few things that jump out from this analysis:
That's what we would expect. With greater risk can come greater reward, and a higher proportion of equities is associated with increased risk and reward.
Of course, just because funds have achieved these returns in the past 5 years, does not mean this is a trend that will continue. If economic winds change, that increased risk can result in greater losses that could be harder, or take longer, to recover from. Past performance does not guarantee future performance and greater levels of risk are generally only advised for those further away from needing to draw their pension.
However, given that many of the funds we've included in this analysis are ‘default' funds (they are the funds 90% of pension savers have been put in automatically and never moved out of), it's highly likely that there are investors who are wrongly in a low-risk strategy when a higher risk fund would have been more suitable for their particular retirement goals, financial circumstances, and appetite for risk.
As one commentator put it: settling for the default fund is like settling for a one-size-fits-all pair of jeans. They might perfectly suit a few people but for the majority, they're not going to be the best fit.
Default funds are based on the likely best interests of the ‘average' pension saver. If you do not match the profile of an average pension saver, it's imperative you consider other funds with different objectives.
There are some very poorly performing funds within these results, with some even posting negative returns. These are large funds looking after billions of pounds of people's retirement savings.
These are some of the largest pension funds provided by some of the largest UK workplace pension providers. These include many of the default funds that more than 90% of UK savers are currently enrolled in.
In summary, billions of pounds of people's retirement savings are not achieving their full potential. And as many are default funds, savers may have no idea.
Sitting in an underperforming fund for 30-40 years could vs choosing a fund that performs well and achieves its objectives could mean the difference between a dream retirement, and just surviving when your employment years end.
Funds are consistently underperforming their benchmarks. And it's not a finding that is unique to our analysis.
For over 20 years, S&P’s SPIVAⓇ research has measured the success of actively managed funds against their index benchmarks. This research is very telling as it speaks to how many funds are meeting appropriate benchmarks for their objectives. The most recent findings are that an enormous 73.61% of funds in the UK have underperformed the S&P United Kingdom BMI benchmark.
What the SPIVA scorecard has found is that “actively managed funds have historically tended to underperform their benchmarks over short- and long-term periods. This has tended to hold true (with exceptions) across countries and regions.”
It has also found that “even when a majority of actively managed funds in a category have outperformed the benchmark over one time period, they have usually failed to outperform over multiple periods.”
Knowing this has implications when it comes to choosing a pension fund as actively managed funds come with higher costs. If those costs are not associated with better results, it begs the question of whether they are worth it.
Star performers included the Nest funds, The People's Pension's funds, and some of the Aegon/Scottish Equitable funds.
Remember, these are not necessarily the highest performing of all pension funds – just those most likely to be default funds and, therefore, the ones most people are invested in. In the case of Nest, for example (the UK’s largest workplace pension provider) 99% of Nest members are enrolled in the funds we have analysed. For The People’s Pension funds, 98.61% of the membership is enrolled in the funds we've analysed.
We haven't included the impact of fees on returns in our analysis. And that may make a difference.
Workplace pension providers charge in different ways and if you're not in a default fund, those fees can vary considerably. They're sometimes different from scheme to scheme, even when investing in the same funds, which is why we've not been able to include them in this study.
Generally, you'll need to pay:
The variation in how fees are charged and differences between ongoing fund charges mean that it's not enough to simply compare the headline ‘annual' or ‘administration' fees your provider advertises. You must be sure you know all the relevant costs.
There is more certainty if you are invested in a default fund, however.
Default funds
If you are invested in a default fund, the fees associated with the administration of your account must be capped at 0.75% of the total value of your pension pot. The pension charges cap applies just to defined contribution pension schemes that you have been enrolled in via your employer.
But note that the cap doesn’t cover transaction costs. So you might have to pay a charge when your investment manager buys or sells assets on your behalf, and you might have to pay to make contributions to your scheme.
Nest (the UK's largest workplace pension provider) funds have performed exceptionally well over the past five years.
However, Nest charges a contribution fee of 1.8% per deposit into your pension. That is an unusual way of charging fees and could work out a costly way to pay for a pension on top of Nest's headline, annual management rate of 0.30%.
The only way to be sure what you may end up paying is to ask plenty of questions when being enrolled into a scheme.
Note – While some of the funds we haven't included in this data (due to their small size) have performed better than a provider's default funds, they have often incurred higher fees.
It's therefore important to weigh up costs as well as portfolio performance when choosing a fund and a provider.
In the past, it was up to workers to opt into their employer’s pension scheme. But since 2012, employers have been required to automatically enrol their workers into a workplace pension scheme. It's now a case of opting out, rather than opting in. If you do nothing, you will have pension contributions taken from your pay.
There are two main types of pensions: a defined contribution (DC) pension, which is based on how much you have paid into your pension pot, and a defined benefit (DB) pension. DB pensions are far less common today than they once were. These pensions are based on what your salary was and how long you’d worked for your employer.