Review your pension now or risk losing out

Posted on: 14 September 2010 by Mark O'haire

Over 17 million people living in the UK have never reviewed their pension but an urgent review could help put an end to poor pension fund performance.

Quite easily, the worst possible opening chat up line would be to begin to talk about pensions.

Although I have been researching them for over 20 years, it never ceases to amaze me how quickly I can fall asleep at the very thought of them.

And that’s probably the reason why over 17 million people living in the UK have never reviewed the pension they have set up.

Each of these pensions could easily be reviewed. A good friend of mine died recently and he had put off his pension planning and didn’t want to even look at it. His pension plan had a value of £113,000. Because he never reviewed it (it ‘bored him senseless‘, he would say), he hadn’t noticed that the death benefit on his pension was actually a return of premiums paid, rather than the total value it had grown to.

Had he had it reviewed, he would have seen that penalty and simply switched the pension. Instead, his beneficiaries received the return of premiums - a paltry £38,000, which translated to a penalty of £75,000.

All too often a pension is taken out at a spare of the moment and never considered again. In  fact, research from Barings has showed that 38% of all pensions taken out choose the default pension fund available and therein lies the reason for poor pension fund performance.

With 48% of us never having reviewed our pensions, only one in five reviewing over the last year and 12% unsure if they have ever reviewed their pension literally millions are being wasted.

Take a pension fund of £100,000. Over the last year the average UK all companies pension fund returned £12,400. The top performer returned £30,800 and the worst fund lost £1,200. The difference between the top and average was £18,400 and that’s just one year.

Over five years the numbers are quite staggering. The average fund returned £19,500, the top fund returned £80,500 and the worst fund returned a loss of £50,800. The gap between the top and bottom was an unforgivable £131,300 on a simple investment of £100,000.

Now we all know that past performance is no guide to the future, but a specialist Independent Financial Adviser will have all the research tools to ascertain a good quality of consistency in the fund manager.

For example; 12 years ago after investing into a sophisticated research mechanism I can now see on a month by month basis how consistent a fund is; how much risk it is taking; where the returns are coming from; the strategy of the manager and their decision making process.

That has been very helpful over the years in ensuring the maximising of returns, but it is only if investors review their pensions that their Independent Financial Adviser can assist in making the relevant changes.

It is perhaps a sad reflection of investors’ views of their financial adviser that 13% of customers use a family member to decide on where to invest their capital and choose which assets to allocate to.

So much so that nearly 2 million people rated the advice from their financial adviser on which fund to use as poor and today, 3.3 million make that decision on their own.

Whilst the largest majority of pension clients do go to an Independent Financial Adviser for their fund advice, the numbers should be much higher.

It is not just about the performance of the fund; the death benefits mentioned above should be enough motivation for anyone but an analysis of charges is also alarming.

Whereas a simple stakeholder pension might set you back close to 1% per year with access to a straight forward tracker fund, other pensions I have reviewed recently charge as much as 10% per year.

It may not be exciting or stimulating but a review is essential.

In many circumstances if you simply transfer the authority of the pension fund the new adviser will be paid to do the review with the commission the previous adviser was being paid to do nothing.

By Peter McGahan

Need Expert Advice?

Peter McGahanPeter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by in 2009.

Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.

Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.

If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email

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