The worst performing pension funds revealed
Research from Bestinvest has identified 113 pension funds with combined assets totalling approximately £31bn that have consistently underperformed their benchmarks over three years.
The five worst funds in the list have not only underperformed their benchmarks, they have all lost investors money over the past three years.
£100 put into the Scottish Widows JPM Cautious Total Return S2 fund three years ago would now be worth just £95.48.
In the Scottish Equitable JPM Cautious Total Return Mixed fund it would be worth £95.65; in the Standard Life JPM Cautious Total Return 4 Mixed fund it would be worth £95.70; in Skandia’s JPM Cautious Total Return Mixed fund it is now worth £95.96; and in the Friends Life: FL Reserve AP2 fund it is now worth £97.90.
Spot the Dog Pensions Edition reveals the funds failed to beat their benchmark – either a relevant market index such as the FTSE All Share or in the case of managed funds, which invest across various asset classes, the relevant Association of British Insurers sector average returns – over three consecutive 12 month periods in succession and also by more than 10% over three years.
Filters are designed to highlight the “worst of the worst” and that there are many more funds out there delivering pedestrian returns so the report merely represents the “tip of an iceberg”.
The report also names a set of 40 funds in four major Association of British Insurers pension fund sectors that it has dubbed the “Long-Term Laggards”.
These have undershot the average fund in each sector by more than 20% or more over the last decade.
Many of the dullards highlighted in the report are legacy pension funds acquired by pension fund consolidator firms who have taken-on assets from former life and pension providers that have closed to new business.
“For many, the world of pensions is shrouded in mystery. Plans are rarely reviewed and even forgotten about. In some cases investors may own funds that are now in the hands of completely different organisations from those they originally invested with, as a result of consolidators operating in the pensions industry,” said David Smith, wealth management director at Bestinvest.
“Many savers are quietly suffering the tyranny of opaque charges and poor performance. This inertia is partly down to the fact that past generations often received a pension based on a percentage of their salary, so there was little incentive to look beneath the bonnet. But the world has changed.
The past 20 years have seen a huge transfer of risk and responsibility away from employers and on to the shoulders of individuals.
Except for the lucky few, gone are the days of gold-plated final salary pensions. Instead, these have been replaced with pensions where, although the company might contribute to the plan, the uncertainty and risk sits firmly with the individual.
Smith added: “The performance of your pension funds therefore really does matter as the price of tolerating poor performance will quite literally be a worse off lifestyle in your retirement. And with people thankfully living longer, their pension savings need to work much harder for them to ensure they have sufficient resources to see them through their retirement years.”
“Spot the Dog Pensions Edition is a wake-up call: your pensions are too important to ignore and you do not have to put up with dire performance.”
Three steps to a better retirement
1. Review the quality of the pension funds you hold
2. Take control of the situation: consider combining different pensions into one SIPP
3. Check whether you are contributing enough to achieve your retirement income goal