Denise Saunders
Stop paying excessive Pension charges
The other day I had the misfortune to be stuck behind an M registration Ford Escort billowing black smoke from its exhaust. At best it needed an oil change but most likely its engine was past its sell by date. Whatever the cause, the car was in dire need of an MOT.
There are many pension policies needing the same treatment. Too many people still have pensions bought 10, 15, or 20 years. In the old days pensions typically had initial charges of 5%, management charges, policy charges, administration charges and a restricted range of funds.
Even worse, some of the companies no longer accept new business and operate closed funds. It is not unusual for closed funds to under-perform their peers. There has been regulatory influence on closed funds (especially with-profits) to reduce exposure to equities which in the long term is likely to adversely impact performance. In addition there is not the incentive to be competitive because these funds are not looking to attract new investment.
The combination of contract charges and fund performance is the key to making the best of your pension. There are significant differences between contracts offered by insurance companies. It’s not a case of one contract being the most suitable for all. You need a contract which suits your particular requirements.
Fund performance varies greatly, even amongst balanced managed funds. The best performance from this sector produced an average of 11.7% per annum growth over the last 5 years to 1st March 2007. The worst produced an average growth of 3.8% per annum growth. And this is before charges.
The clever punters would have made use of an IFA. They may instead have invested in a diversified portfolio which might have included a UK equity fund, one of the best performing funds, has returned an average of 16.7% pa growth over 5 years and a commercial property fund with a corresponding growth of 13.1% pa.
Like Cars, a few old pension policies might still be good runners but the vast majority should be considered to be traded in for a new version with modern terms, lower expenses and better performance. Contact Langtons to talk to an IFA.