Get what you deserve
Jenny Lowe exposes those pension funds that consistently underperform and urges those saving for retirement to ditch the duds.
Having spent the past month touring the UK with Selftrade’s SIPPex roadshow and various pensions experts, talking to investors about pensions and, in particular, SIPP products, it is shocking just how many people don’t know where their pension is invested.
In fact, 16.8 million Britons have failed to check what is in their pension plans. Of those who did check, seven million have no idea what their pension is invested in, and because all of this is quite confusing, a massive 6.7 million simply opted for the default option, leaving it up to the pension provider to choose.
‘What is wrong with that?’ I hear you ask, after all, they are the professionals, experts in the field of pension planning, surely they will make my pot grow.
Underperformance
Well, let’s take a closer look. An analysis of the performance history of UK pension funds with more than £1 billion invested, carried out by howmuchdoineedtoretire.co.uk, reveals that over £18 billion of your money is languishing in heavily underperforming funds.
Based on an average of the fund’s performance over a five-year and ten-year period, the worst offender was Abbey Equity. This fund has more than £1.2 billion worth of funds invested, but only managed to produce a five-year gross return of 9.4 per cent. Basically, this means that a £1,000 investment in the fund would have grown by just £94 over five years.
Scottish Life is another ‘pension dog’. The Royal London Group’s Scottish Life Managed Fund has £2.2 billion in
assets under management, and a £1,000 investment in this fund would have seen a minimal 1.9 per cent annual growth rate over five years – a return of just £98.
Could this get any worse? Absolutely. Scottish Life’s second offender, the Scottish Life Property Fund, managed to accumulate a negative five-year annual growth rate of -3.4 per cent.
Other poor performers include Friends Provident UK Equity, Clerical Medical Managed and Phoenix Life Exempt Managed, all of which have consistently underachieved. It’s figures like these that highlight the importance of reviewing your holdings and getting rid of the rubbish. And while you are tolerating this dismal performance, the sheer size of these portfolios means that the managers are being paid handsomely for losing you money.
If you are currently invested in a lacklustre fund, switch as soon as you can. Pensions have undergone huge transformations over the past decade, with the advent of SIPPs and the expansion of personal pensions meaning that investors have many more options than they did five years ago.
But what is abundantly clear is that pension fund managers have failed their investors. There has been a staggering mismanagement of investors’ money in the Managed Fund sector, where the only thing they have managed to do is keep your money below a reasonable measure of return.
Worst-performing pension funds
Fund Size (£bn)
1. Abbey Equity 1.27
2. Friends Prov UK Equity 1.80
3. Scottish Life Managed 2.20
4. Clerical Medical Balanced 2.44
5. Phoenix Life Exempt Mgd 1.40
6. Scottish Life Property 1.12
7. HSBC Life (UK) Balanced 1.01
8. Lincoln Balanced Mgd 1.09
9. Lloyds TSB Managed 3.49
10. Barclays Life Managed 2.24
Cumulative fund total: 18.07
Source: howmuchdoineedtoretire.co.uk
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Top Ten Life Funds
| Fund | Offer | 1y | 3y | 5y |
|---|---|---|---|---|
| UBS Life Structured Credit A | 85.37 | 229.6 | n/a | n/a |
| Skandia Finland FIM Russia | 11.32 | 205.5 | -3.7 | 76.6 |
| Skandia Finland JPM New European | 1.93 | 154.5 | -9.6 | n/a |
| Skandia Finland Alfred Berg Ryssland | 0.86 | 152.2 | n/a | n/a |
| Skandia JPM New Europe | 250.10 | 147.2 | 17.7 | 93.6 |
| Skandia Finland Baring Eastern Europe | 9.93 | 144.5 | -15.1 | 52.4 |
| Canlife SVM UK Opportunities LS4 Acc | 102.10 | 138.0 | -14.4 | 34.5 |
| Merch Inv Sanlam Global Financial S6 | 105.80 | 136.5 | n/a | n/a |
| AXA JPM New Europe | 194.20 | 135.4 | n/a | n/a |
| Zurich Sterling JPM New Europe | 259.50 | 134.1 | n/a | n/a |



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