Warr on...

Pension Performance Revisited - Again!!

 

With a view to adding another chapter to an existing story, we have taken the opportunity of revisiting an article we have posted previously. This provides the opportunity to demonstrate a trend that appears to be an unfortunate one for those that are continuing to save for retirement via some of the prominent insurance companies within the marketplace.

Within the articles titled ‘Don’t Leave Your Personal Pension to Stagnate’ and ‘Pension Performance Revisited’ we extoll the benefit of regular reviews of pensions as apathy towards pension planning can be significant obstacle in clients achieving their retirement objectives.

The articles centred on the difference between the performance experienced by clients via Stakeholder Personal Pensions and the opportunities that prevail in a non- Stakeholder environment.

We are continuing to encounter clients with Stakeholder pensions that are enduring lacklustre performance from their core fund holding, typically managed funds, but continue to retain them through inertia. As pointed out previously, such funds are appropriate for some clients, as they provide a balanced spread of investment risk via exposure to various different asset classes. However, because existing funds satisfy a client’s attitude to investment risk, it does not concur that they should forget about whether it is achieving a satisfactory level of performance.

We have taken the opportunity to illustrate below the performance of the same sample of insurance company managed funds versus that of similar funds managed by specialist fund management houses. Within the table, for comparison purposes, we have detailed the performance quoted in the previous article 12 months ago alongside the same performance figures 1 year on.

Fund

1 year

2 years 3 years
2007 2006 2005 2007 2006 2005 2007 2006 2005

Clerical Medical Balanced Managed

2.9% 7.6% 8.1% 16.5% 22.4% 14.5% 32.5% 29.7% 26.4%

Friends Provident Managed

5.4% 11.0% 8.8% 23.1% 27.1% 18.5% 41.0% 38.4% 30.6%

Norwich Union Balanced Managed

11.3% 17.7% 15.3% 30.2% 35.6% 25.5% 49.1% 47.6% 40.9%

Scottish Equitable Mixed

6.5% 10.0% 9.1% 23.3% 26.3% 17.4% 41.5% 35.9% 28.8%

Prudential Deutsche 3 Balanced

10.9% 17.6% 19.2% 30.4% 41.4% 28.3% 56.8% 52.2% 45.9%

Scottish Widows Newton Managed

11.9% 15.4% 16.4% 29.1% 34.4% 28.2% 50.3% 48.0% 50.9%
Scottish Widows Invesco Perpetual Managed 12.1% 22.6% 16.3% 37.4% 42.6% 29.2% 59.8% 58.4% 57.2%

Source: Money Management December 2007 – Morningstar @ 1st Nov 2007 – Cumulative performance of £1,000 buy to sell, gross income reinvested

Source: Money Management December 2006 – Standard & Poors’ Micropal @ 1st Nov 2006 – Cumulative performance of £1,000 buy to sell, gross income reinvested

Source: Money Management December 2005 – Standard & Poors’ Micropal @ 1st Nov 2005 – Cumulative performance of £1,000 buy to sell, gross income reinvested

The brief but important message we are trying to convey is to not sit back and do nothing. In the first instance, you should analyse existing funds and strategies. If fund holdings are poorly performing, establish what alternatives are available within the existing contract that you may consider. If the situation cannot be improved upon in house, then look for an alternative provider.

Admittedly, access to externally managed funds, i.e. funds managed by specialist investment fund managers, where better performance track records can often be found, does not come without a cost. However, that additional charge need not be considered excessive. More and more providers have come into this market, providing a wrapper within which you may invest across a broad range of funds. This healthy competition has seen the charges associated with such contracts reduce.

Indeed, if you compare the charging structures of such policies against those of Skakeholder Personal Pensions, the primary difference in many instances is the annual fund management charge. Thus, if you bear in mind that the quoted performance figures above are after deduction of the respective standard fund management cost, it is still possible to enjoy a higher overall net return.

Previously, this approach could only be attained within the confines of a Self- Invested Personal Pension (SIPP). These will still remain appropriate for those clients that require unrestricted access to fund management institutions in the marketplace. However, these continue to prove comparatively expensive, particularly where this investment freedom is not being utilised to it’s fullest or fund values are smaller. There are pensions available in the marketplace that offer a happy medium, offering a broad range of externally managed funds, which will satisfy the investment risk profile and choice requirements of many, at only a modest additional cost over and above that permitted within the Stakeholder regulations.

We have merely noted a small selection of companies, which does not in anyway constitute specific advice to move from or to these selected funds/companies. However, if you would like a detailed assessment of your own pension(s), please feel free to contact us.

Date of Article: 29th November 2007

Tim Warr - Warr on...
Register to receive articles
 

Our website is a regulated business territory site. Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Tim Warr on 0161 477 6789 or email us at info@warr.co.uk.