Ask Jenny Ross: My pension pot isn't growing, so what should I do?

Question: I’m 66 years old. I’ve been paying into a pension since 2002. It matured last year but, because it was so low I carried on paying into it (I now pay £83 a month). However, it doesn’t seem to even grow by that amount. Could you please suggest any other options?

Stock market slumps due to the pandemic and the war in Ukraine will have had a negative impact on the value of many pension funds

Answer: It sounds like you’ve been paying into a defined contribution pension, the most common type of private pension, where the money you pay in is invested and the value of your pot when you retire depends on how much you’ve put in and how the investments have performed.

The idea is that the money you’ve invested will grow over the long-term and leave you with a healthy retirement pot, but this isn’t guaranteed. All investing involves a degree of risk, so it’s possible for pensions to go down in value as well as up.

Stock market slumps as a result of the pandemic and more recently the war in Ukraine will have had a negative impact on the value of many pension funds. For savers who are still a long way off retirement, this isn’t a concern as they have plenty of time to reverse poor performance before they need to cash in their savings.

Unfortunately, this might not be the case for you. You don’t say when you’re planning to access your pension, but this is likely to be sooner rather than later if you’re 66.

Most pension savers are invested in their scheme’s ‘default fund’. These are designed to suit a wide range of savers, but tend to put your money into more cautious investments – not necessarily the best option for younger savers who are willing to take on more risk in the hope of better returns.

But in your case, opting for higher-risk investments now could compound your problem rather than solve it, as your pension would have limited time to recover from any falls in value.

Instead, the best approach for now is likely to be to sit tight. The longer you can afford to leave your pension untouched, the more time it has to grow – although, again, this isn’t guaranteed.

Investment growth (or lack of it) isn’t the only thing that can affect the value of your retirement savings. Charges are also important. While the performance of your investments will fluctuate over time, you’ll have to pay charges on your pension regardless. Even seemingly small differences in charges can make a big difference to the value of your pot over time.

Pension advisory firm Profile Pensions estimates that reducing your total pension charge to 0.4 per cent a year from 1.2 per cent could save you £18,239 over 20 years (based on a pension value of £50,000 growing at five per cent a year).

Schemes must tell you how much they’re charging you, and you should be able to find this information on your provider’s website or your annual statement. (While you’re checking your statement, make sure your contributions have actually been reaching your fund – just in case anything has gone awry). If you find your charges are high, you could consider transferring to a cheaper scheme.

Charges for DIY self-invested personal pensions (Sipps) are considerably lower than charges for other defined contribution pensions, but you need to be confident in making your own investment decisions.

Before taking any action, think about speaking to an independent financial adviser, who will be able to make personalised recommendations to help you achieve your retirement goals. If you’re concerned about the costs involved, there’s also Pension Wise – the free, impartial guidance service from the government available to anyone aged 50 or over with a defined contribution pension.

Jenny Ross is editor of Which? Money

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