It is not unusual for an owner of a pension plan to have some form of view of it as something other than an investment.
Meaning, they regard it as a pot for retirement that will produce what it will produce.
With most investments, we will, quite rightly, pay attention to the makeup, paying heed to the investment risk, the targeted return, the management, the price, the performance and so on.
With pensions, however, this seems to be commonly ignored, leading to the situation where millions of pensions languish in under-performing funds.
Worse still, it is not uncommon for some pension investors to have no idea which company their pension is with, let alone the funds it is invested in, or how it has performed, or what its charges/costs are.
Rarely would anyone actively invest their hard-earned cash in anything, and then pay no attention. It does seem to be a particular aspect of how we view pensions.
This is a mistake.
A pension is an investment just as much as any other long-term savings arrangement.
In fact, because pensions are normally locked away for retirement, if anything they should be prized more highly, for the rules which lock them down until retirement age, produce a long-term discipline aspect.
When we look at returns projected into the future, the difference between one investment producing X% and another producing X+2%, won’t produce much difference in the next 5 years, but over the next 30 years the difference will be huge, thanks to the power of compounding returns.
Just as a notional example if you put £20,000 aside and it grows at 4% per year (net of costs) it will be worth just under £65,000 in 30 years.
That same £20,000 growing at 6% per year (net of costs) will be worth just under £115,000.
That seemingly small extra 2%, bloats the amount by £50,000.
How many £20,000 pension pots are “out there” where the owner has no idea what is going on? We would suggest there are a lot!
In fact, we come across examples of people with £200,000 in a pension who cannot say how or where it is invested (and occasionally even name the company it is with!)
This is a matter of principle, not the sums. The principle is that there is an attention prize here, as with good management and paying attention, any pension can be reviewed to see if it is where it needs to be to optimise the prospects.
If extra returns can be achieved, and that is far from guaranteed, then the value that comes back, is represented by more money in retirement.
The point is this – a pension plan, where the money within it is invested, say in funds, is an investment just like any other and should be treated as such.
If you have a pension and not sure of how it is set up, where it is invested or what it is doing for you, that is normal, as somehow or other this is the way pensions have been viewed over the years. We are here to help, and can give you the answers you need and apply that all-important attention on this.