A CRUCIAL question: who is the main person who’ll be looking after you when you retire? Here’s the answer: it’s you. Today.
What you are doing today will dictate the lifestyle you will have, if you ever stop working. One crucial element of this is to arrange a financial review, and look hard at how your pension savings are invested. This could make you £1,000s better off, when you retire.
We have spoken recently in this esteemed column about how retirement is no longer a given, it can no longer be taken for granted. Times have changed since the day when our grandparents seemed quite able to get by on just their state pensions. That’s not so easy these days, and survey after survey shows that many people today believe they may never be in a financial position to stop working.
‘Turbo-charging’ your pension now could actually mean the difference between being able to afford to retire tomorrow, or being forced to work longer than you want – from being, as they say these days, ‘trapped in the workplace’.
Here’s how it works. The savings in your workplace pension, or personal pension if you have one, aren’t just lying in a big swimming pool full of cash somewhere. They are invested in the stock markets. And of course it’s in the nature of stock market investments to feature a certain amount of volatility; we’ve all heard that ‘the value of investments can fall as well as rise’. Nonetheless, history shows that stocks and shares are generally a much better investment than cash, in the long term.
That having been said, low interest rates in recent years, combined with the Bank of England printing new money to inject a little music into the economy, may have combined to boost share prices, which can mask under-performance in some investment funds.
In other words it’s only when the markets take a real downturn that funds, and their managers, are shown in their true colours. At times like this, I like to quote the American investment guru Warren Buffet, who put it this way: "It’s only when the tide goes out, that you find out who’s been swimming naked".
This is why it’s crucial to check, at least once a year if you can, that the funds where your cash is held are ones that are performing well.
You have a great position of power here, because you can have a financial adviser take a look, and if the funds you have now are among this season’s sluggish performers, you can switch into better ones. That’s why it’s called ‘turbo-charging’: you can make sure your pension’s growing as fast as possible, and that you are not missing out on growth you could otherwise have had.
This was on my mind this week, because I’ve just received the latest funds report from the fine fellows at Bestinvest.
Bestinvest is the financial research company who monitor the performance of investment funds, and this month they’ve published their latest report on the best and the worst funds in the market.
They do this every six months, and this time they’ve identified 91 sluggish performers that have failed to hit their targets by over 5 per cent in each of the past three years. This is a big increase from the 59 funds that appeared in their last report, six months ago.
Even more worrying, we’re talking about some of the largest funds in the country. These include 11 mega-funds, each with assets of over £1 billion under management. Bestinvest also estimate that investors are paying £410 million of annual costs for the dubious pleasure of being invested in these serial under-achievers.
As I say, it’s so easy to have an adviser take a look inside your pension, to see what’s going on, and do some tweaking to make sure your money is revving on all cylinders.
Metaphorically speaking, you can trade in your old banger for a sleek new sports model, just by carrying out the above financial review. Let us turbo-charge your pension today!
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 02871886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
