Perk up your pension pots

Published on Saturday 21 February 2009 12:47

NEARLY £200bn of pension savings is sitting in poorly performing funds, wasting the opportunity to earn superior returns elsewhere.

Many savers haven't a clue where their pensions are invested or even what pensions they have.

Tomorrow a new free service will be launched by Perth IFA Douglas Baillie to help savers get to grips with their pensions. By tapping into www.comparemypension.com, you can log on to a pension tracing and analysis service for free.

Baillie will trace your pensions, examine how they are performing and how much they are costing you. He will then tell you whether you are getting good value for money or might do better elsewhere.

If you are locked in duds, his team will draw up an alternative strategy, and quote you a cash fixed fee for conducting the transfer work. If you wish to take up the offer, you can. If not, there is no obligation to do so.

Rollercoaster stock markets have left many savers anxious about their retirement plans. However, Gordon Forbes, of Caledonia Asset Management in Edinburgh, believes there are opportunities to improve your situation.

He says: "It is certainly a good time to be proactive about your pension. People are seeing their pension values cut by 30% or 40%. It is a worrying time. But it doesn't have to be, as long as they make sure they are doing the best they can in the circumstances."

Baillie says his pension tracing and analysis service can help: "Over the past decade we have developed sophisticated electronic systems which allow us to do this easily and offer the service for nothing.

"But we see so many people who have no idea where their pensions are invested. They may have four or five different pots with former employers. They don't know what the benefits are, where the money is invested, how much those investments are costing them. The same applies to personal pensions.

"Many policies were taken out years ago when charges on funds were higher. These can cost you dearly in terms of poorer income in retirement."

Zurich, for example, now runs the old Allied Dunbar funds, which were very high-charging. Similarly, Scottish Widows has the old Abbey funds, which are expensive compared with modern investment opportunities. Phoenix controls a number of zombie funds, including the old Royal Sun Alliance and Alba pensions.

A free pension tracing service already exists at the Pension Service ( www.thepensionservice.gov.uk), but this only largely helps you track down pensions you have lost or which have disappeared following takeovers.

Other pension advisers also offer a pension analysis service, but they are not open to all. At Intelligent Pensions in Glasgow, for example, they conduct a full investigation into your pension affairs for free, but only if your policies add up to more than 50,000.

Managing director Steve Patterson explains: "Many people are very disorganised when it comes to their pensions. So we take a look at them and see if they will do better moving, but also look carefully at what they could lose. Do they have a Guaranteed Annuity Rate? Are there exit penalties? Do the reasons for transferring outweigh these negative factors?"

Baillie adds: "For most people their pension is their second-largest investment after their house. Yet the lack of information available on the arrangements they have in place is frightening."

Doing it yourself

Check your pension's performance

If you have a pension plan into which you have invested for some time, get out the paperwork to check which fund you are invested in.

You can try to check performance out on the internet, but it may be difficult to compare your pension with the competition.

Alternatively, call your fund provider and ask for details of your fund's performance over one, three, five and 10 years. Also ask for the equivalent performance of the All-Share and FTSE 100, and data for the average sector performance.

If you're paying for an active management service, then underperformance is unacceptable.

If your fund is underperforming

Establish what it will cost to exit the fund, and check the performance record of your existing manager's other funds. Contact your insurer and ask for details of exit penalties and their other funds' performance.

Your company might have a range of well-performing funds and just one historic dud, so it will normally be cheaper to simply switch across.

If your company's record elsewhere is less than inspiring, you may need to transfer your money elsewhere. However, this will almost certainly incur exit penalties and potentially switching fees.

What should I switch to?

Essentially there are two choices: a low-charge stakeholder pension or a self-invested personal pension plan, which may be more expensive but will provide a wider choice of funds. If your pot is small, say below 20,000, a stakeholder is the best option.