How your pension could be damaging your wealth

With a combination of tax relief, tax-free growth, exemption from inheritance tax and possible employer contributions, pensions are an extremely efficient savings vehicle. They have also changed a lot over the years, so a pension transfer may be worth considering: they are generally cheaper now, and many older ones are generating poor returns. High charges and low growth is a fatal combination for any investment, and your wealth could be eroding as a result.

Unfortunately, many people do not pay much attention to their pensions; with a full-time job, commuting and children to look after, it’s difficult to find time to look at investment performance. If you think about your pension, do you know the answers to the following questions?

  • How much are you paying in annual fees?
  • Are your funds growing as expected?
  • Are your funds on track to provide the retirement income you need?
  • What is your money invested in?

If you don’t know the answers, you’re not alone but it’s important to find out. Many older pensions are performing badly, and ‘with profits’ schemes can be particularly bad as many are forced to invest in low performing assets. In fact, over the past 10 years, the typical ‘with profits’ scheme grew by just 2.9% a year.

Of course, market fluctuations are to be expected so lower growth in some periods than others is normal. It’s also true that past performance is not a reliable indicator of future results. However, if the investments are underperforming realistic expectations then transferring to better investments can hugely boost your retirement income. Each day that your pension performs badly is a day that harms your eventual income; it’s also a day that growth and interest could have been building up elsewhere.

How do I check if my pension is helping or harming me?

Just like you MOT your car and have dental check-ups for your teeth, our free pension review gives you peace of mind that your retirement plans are on track. The service looks at:

  • Your annual fees and charges, and whether you would be better off paying a single fee instead of having multiple small pots
  • Any benefits with your scheme
  • Where your fund is invested
  • If the investments are performing better or worse than can be reasonably expected

If your pension is underperforming and you do not know, you could have a nasty shock when you reach retirement. On the other hand, by finding out ahead of time and choosing a pension transfer, you can look forward to a larger later life income. Many people do not know what their pensions are invested in, and just hope for the best. We have an evidence-based investment philosophy, backed up with offered annual reviews, so if you are recommended a pension transfer and choose to go ahead with it, you can rest assured that your future income is in good hands.

Have you checked your pension lately? Tell us with a comment below.

Call 0800 304 7288 for a friendly chat about your pension

[1] Average of 46 UK With Profit schemes, from FE Analytics

[i] Tax treatment depends on your individual circumstances and may be subject to change in the future

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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