Letter from the Editor: The £££ question you should be asking about your pension

Do you know how well your pension has actually performed?

If the answer is no, you’re not alone. But checking could be much easier than you think – and if your pension has been lagging behind for years, finding out now could mean thousands of pounds more in retirement.

What’s the problem?

When you look at your pension statement, you’ll probably see how much money you have saved. But there’s another question that’s just as important: Is that money growing fast enough?

It’s reassuringly easy to put money into a pension every month whether it’s through a workplace pension scheme, or a personal pension you set up ages ago, and forget about it and assume everything is ticking along nicely.

But your pension is invested, and different investments can produce very different results over the long term. The good news is that you no longer need to understand complicated investment charts to discover how yours is doing.

How to check your pension performance

1. Find out the name of the fund your pension is invested in.

You should normally be able to find this on your pension statement or by logging into your pension provider’s online account. If you’re not sure and you’re in a workplace pension scheme, you could ask your HR department or employer for a reminder of which provider your pension is invested with. Then get in touch with the provider and ask for the name of the fund you’re invested in.

2. Find your fund provider and then select the relevant fund name in our free online Pension Performance Checker tool.

3. Look at the chart to see how it’s doing compared to the average performance for that type of pension fund.

Pension funds have different aims and objectives, often dependent on when you’re planning to retire and how much risk the provider believes you should be exposed to, so we’ve grouped pension funds together into categories based on these details.

4. Consider your options.

• You might be perfectly happy with how your pension is doing. In which case, you don’t need to do anything apart from check in on the pension every now and again because past performance is not a guarantee of future performance, and things can change.
• You might need some more help working out whether you’re happy with the results.

  Ultimately, the most important measure of how well a pension is growing is whether it’s going to hold enough in retirement to allow you to live the kind of post-work lifestyle you dream of. To make that assessment, you need to know how much you’re likely to have – and need – in retirement.

  Using our free pension calculator can help you understand what you’re on track to receive. But it’s important to remember that no-one can perfectly predict the future and as there are a lot of factors at play here (including ones you can’t control such as the world economy and performance of companies your pension is invested in), you may want to speak to an Independent FinanciaL Advisor to get a fuller and more accurate projection of your likely wealth in retirement, and how much is ‘enough’ for your pension pot.

• If you’re unhappy with the performance of your pension, don’t ignore it.

That doesn’t necessarily mean you should immediately rush to switch funds. Your current fund might be deliberately taking less risk, or there could be other reasons for the difference. Plus, a panicked, knee-jerk reaction could be something you later regret.

It’s important to note that you don’t need to be invested in the no.1 fund every year. One disappointing year doesn’t necessarily mean there’s anything wrong with your pension. But if things don’t look positive, it’s worth investigating. A difference in investment performance might be small when you’re looking at a single year. But over several decades, even relatively small differences can compound into a significant amount of money.

So take a closer look at whether your fund has:

– Consistently been among the poorer performers compared with similar funds
– Lagged behind relevant markets or benchmarks over longer periods
– Failed to perform strongly even during periods when markets generally did well

The key word is consistently. A pension is a long-term investment. Investment growth can itself generate further growth. So if your pension is consistently lagging behind comparable funds, that could translate into a disappointing total at retirement.

Should I switch pension funds?

Checking performance is about spotting something worth investigating, not automatically moving your pension.

Don’t assume that last year’s best performer will be tomorrow’s best performer. (Past performance is not a guarantee of future performance!)

If you do decide to move where your pension is invested, you may not need to move pension provider, just your pension fund. Ask your provider for performance data on all the funds open to you. It could be that you have previously been placed in a ‘default’ fund or one totally unsuited to your needs. A change into a different fund, with a different fund manager or different objectives, could be enough to get your retirement plans back on track. If it’s your current workplace pension you’re considering moving, this is particularly relevant as it’s highly unlikely you’ll be able to switch provider. But you should be able to switch funds, which gives you options if you’re not happy.

It’s also very important to make sure you understand how much investment risk you’re taking. The top performing pension in our charts may be wildly inappropriate for your stage in life, or appetite for high risk investments.

If you’re approaching retirement, this becomes particularly important. Large falls in the value of your pension shortly before you need the money can be difficult to recover from, which is why many retirement funds transition savers to lower risk investments as they close in on retirement age. On the other hand, being too cautious too early can also mean missing out on potential long-term growth. If you need help understanding how much risk you should be taking, we can match you with an Independent Financial Advisor who can provide tailored financial advice.