How you can speed up the growth of your pension tree
DID you know that your pension is like a tree?
It is not static. It's not like an insurance policy, that you can arrange once and then file away in a drawer and forget about. Your pension is organic. It is growing and developing, and as it grows, just like a tree it must be regularly tended, checked and reviewed.
People talk about ‘pension saving' but a pension is also an investment, and one that has to be monitored, and possibly updated, because it can change every year.
If you have your pension checked yearly, it will not only develop but flourish: growing your money as quickly as it can grow, building you a pot that gives you a good return on the lifetime of contributions you put in.
But there's always a downside, isn't there? In this case, the downside is that if you don't have your pension checked and monitored, your money might not be working as hard as it should. In fact, because you didn't make that one phone call a year to ask your financial adviser to check for you, then at the end of the road, when you come to retire, you could find you missed out on thousands of pounds of growth you could so easily have had.
Our regular wake-up call on the need to review comes from the investment research company Bestinvest, which keeps tabs on the investment funds where our pensions are invested.
Their latest report identifies 91 funds they classify as under-performers. These are funds which have missed their growth targets – known as their ‘benchmark index' – by a substantial margin in each of the last three years.
Between them, these 91 funds hold a staggering £43.9 billion in assets, and all of that money has, quite simply, not been growing as it should. This means that if all or part of your pension is invested there, it's you who have missed out, too.
It's a big increase since last year's Bestinvest report, which discovered only 59 under-performing funds with total assets of £32.6 billion.
In the financial services industry, under-performing funds are known as ‘dog funds' and they can seriously affect your wealth – but not in a good way.
I mean, when a dog approaches your pension ‘tree', well .... we all know what dogs do when they're passing a tree.
Bestinvest are not all doom and gloom, though, they are fair and balanced. They don't highlight only the under-performers, they also highlight the top performers - those funds that are doing very well.
This time round, it's funds that invest in smaller companies that are doing well. In fact, in the UK Smaller Companies sector, where active managers have enjoyed a high success rate of beating their index benchmarks, there were no under-performing funds at all. Well done, boys and girls!
For you the pension saver, the good news is that your money can be switched out of under-performing funds and into top performers, so that you're riding the wave of maximum growth, getting the best available, every year.
A pension check is a bit like getting a service done on your car.
Getting rid of the ‘dog' funds and switching your money over into the best-performing funds is like having your car engine serviced so that it's purring like new, giving you the best possible pension for the pounds you are putting in.
Just by asking for a pension review, and then if necessary switching, the additional long-term growth you can achieve can win you thousands of pounds you otherwise wouldn't have had. When you think about it, it's free money.
We can speed up the growth of your pension tree!
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on our Facebook page “Kennedy Independent Financial Advice Ltd” or our website www.mkennedyfinancial.com