This April, millions of savers will have considerable more flexibility and access to their retirement savings due to the ‘pension freedoms’ announced since the last Budget. For many this will lead to a brighter and more fulfilling retirement.
Unfortunately however, many people find that the size of their pension pot is substantially smaller than it should be. The reason behind this is the charges paid to active fund managers. Let me explain further…..
The subject of fund performance has been researched by academics for decades and nearly all come to the same conclusion that:
‘The vast majority of fund managers underperform their market comparable benchmark after costs. In addition there is no formulae to predict which manager will regularly outperform their benchmark – apart from hindsight!’
So as the image suggests, you need focus on the elements that you can control – with regards to your investments (including your pension) that is your asset allocation, having your investments match with your appetite for risk and finally controlling your costs.
The reason for this articles is to provoke action. Specifically:
- Do you actually know how much your pension is costing you, not simply the annual management charge, but all the additional charges like marketing & legal fees and the cost of turning over the portfolio year on year. If not find out – your pension is likely to be your second largest asset after your home. You need to understand how it works and what it costs.
- Ask whoever arranged your pension and picked your funds to compare your portfolio’s performance to that of its sector benchmark. Many of you can do this yourselves by using a website like TrustNet (trustnet.com).
- If you are trailing the benchmark – you need to seriously consider whether you are getting value for money (Please note most of these comparables are done gross (before costs)).
- Probably most important – are the funds being invested in line with your future lifestyle plans and aspirations? Can you retire with sufficient cashflow to last you for the length of your retirement? If you’re not sure ask your adviser. If they can’t answer this question – well…….
Is there an alternative?
Well there is…its called passive (or evidence based) investing and one of its biggest supporters is none other than Warren Buffett (the World’s greatest investor), who states (in his annual letter to shareholders Feb 2014) that he wishes his assets to be invested in low cost globally diversified passive funds on his death. Well if its good enough for Mr Buffett….maybe, just maybe its good enough for you.
Let us meet you and understand your life, your plans and your future. Contact Rajesh on 0116 262 14 14 to book your Pension Review.