The worst places to put your pension


In its first-ever Spot the Dog Pensions Edition report, Bestinvest has identified 113 different pension funds from a range of investment managers, all of which have badly under-performed.

To find these 'dog' funds, Bestinvest started with pension funds worth more than £2.5 million that have failed to beat their benchmark over three consecutive 12-month periods. Of these, Bestinvest identified 113 funds that had underperformed their benchmark or sector average by 10% or more.

You can download the full Spot the Dog Pensions Edition report to see whether your own pension is in one of these dreadful funds.

The worst of these dog funds had under-performed their benchmark or sector average by a quarter (25%) over three years, producing truly terrible returns for investors. These three US-focused funds are AXA Wealth Investec American S4, Scottish Widows Investec American S1 and Skandia Investec American.

Despite revealing 113 so-called dog funds, Bestinvest warned that these are merely 'the worst of the worst', because there are hundreds more funds delivering pedestrian returns.

Bestinvest also revealed its 'Long-Term Laggards': 40 funds that have undershot their sector average by 20% or more over the past decade. Many of these stragglers are 'legacy' funds, taken over by consolidators - firms that manage assets for former providers since closed to new business. These include several failing funds from Abbey Life, Friends Life, Phoenix, Sun Life and Windsor.

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Why put up with a pathetic pension?
While many of us pay close attention to our everyday finances, very few conduct regular reviews of our pensions and other long-term savings. As a result, we lose billions of pounds a year in forgotten, overlooked and rarely reviewed pension plans.

In many cases, savers have no idea how their funds are performing relative to their peers, nor are they aware of the harmful effect of excessive upfront, ongoing and admin charges. When opaque charges combine with rubbish returns, investors may get hardly any growth at all.

That's why everyone saving for retirement should check their pension plans every year to make sure that they are on track. Your pension is too important to ignore; you do not have to put up with dire performance.

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Build your own DIY pension
First, a warning: before switching pension providers, first find out what exit penalties your current pension provider will charge. In some cases, transferring out of a scheme could also mean losing valuable guaranteed benefits or bonuses, so look carefully before you leap. Then again, if you have, say, 10 years to retirement, then getting out of poorly performing funds may be worth paying steep exit charges.

One way to get your retirement planning back on track is take control of your pension using a Self-Invested Personal Pension (SIPP). Modern SIPPs combine low charges, flexibility and a wide range of investment funds, enabling you to build a do-it-yourself pension to meet your personal needs and circumstances.

Here are five reasons to start a SIPP:
  1. A low-cost SIPP's initial and ongoing fees will be much less than those levied by traditional personal pensions.
  2. SIPPs offer both flexibility and a wider investment choice than old-school personal pensions. This allows you to adopt an individual, pick and mix approach to retirement saving.
  3. Your SIPP can be used as an umbrella to bring together and shelter various existing pension plans, all under one roof. This cuts down on paperwork and hassle.
  4. You can transfer existing pension plans (and non-pension assets such as shares) into SIPPs, so you don't necessarily need fresh cash to start one.
  5. You get tax relief on contributions to SIPPs and other pensions, with a £100 contribution costing £80 for basic-rate taxpayers and just £60 for higher-rate taxpayers.
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