Three Reasons to Review the Contents of your Company Pension

The latest statistics into auto-enrolment have shown that pension saving is on the up, with figures from 2019 showing that over 10 million individuals are now enrolled in a workplace pension. However, not all pensions are equal and a series of other statistics suggest that individuals could be missing out on maximising their potential investment returns.

It is estimated that around 90-95 per cent of individuals registered with an employer pension scheme stick with the default fund, leaving significant room to question whether an alternative choice might be better suited to their needs.

Research by Hargreaves Lansdown found that 74 per cent of people are unaware of where their pension is invested, with only 11 per cent of those surveyed knowing what was meant by a ‘default fund’.

Clearly, people are opting for the easiest option when it comes to setting up their pension, and thereafter failing to take a significant interest in how their pension is growing or performing. However, the default funds within an auto-enrolment pension are unlikely to fit the age, attitude to risk or personal preferences of every individual.

Here are three reasons you might want to review the funds your pension is invested in.

Look to improve performance

A company pension fund will usually have to meet the needs of a large number of employees, across a wide variety of earnings and ages. As a result of having to provide a one-size-fits-all solution, the majority of default pension funds offered by auto-enrolment are likely to be conservatively managed. For most people, better investment options may be available, resulting in the potential for increased returns.

Research by Hargreaves Lansdown shows that default pension options underperformed the most popular funds actively selected by workers – or their advisers – by 4.89 per cent a year, over a five-year period.

Although you may not consider that a 1% or 2% increase in the performance of a fund would make a great deal of difference, underperformance at this level over the course of an individual’s working life could mount up into a significant amount.

Check that your investments align with your beliefs

As more and more people look to take a more sustainable or ethical approach to their lives, the credentials of the companies in which their money is invested is becoming a greater concern for pension holders.

Within any investment fund will be a number of companies – and these can vary across a wide range of industries and individual companies – whose practices you may not necessarily agree with. The process of investing money effectively means you are supporting that business, a fact that you may feel uncomfortable with.

It is highly unlikely that the default funds the majority of company pension schemes are invested into would be classed as ‘ethical’. Therefore, taking a closer look at the default funds and the companies within them may prompt you to make changes, opting to invest in funds and companies that align more closely with your ethical stance.

 

Spark your interest in long-term planning

Many people pay into a pension for many years without ever really thinking about what it means. The money that you accumulate in a pension effectively becomes your income stream when you reach retirement age, so it’s in your interests to understand it. Once people start to look into their pensions in more detail, it can spark several questions – not least the question of whether you’re saving enough for a comfortable retirement. Many people will contribute the minimum level required, but could perhaps afford to contribute more. Some employers will offer to match additional contributions made by employees – so this could be well worth it in the long term.

Outside of this, some people may wish to take greater control over their own pension, or look at the other tools available to them. If you wish to develop a more robust financial plan and look at all of your options, including ISAs, private pensions, investments and other forms of savings, a review with a financial planner can prove a worthwhile exercise.

If you’re unsure what funds your pension is invested in, the first step is to speak to your employer or get in touch directly with the pension provider. From here, you should be able to check what you’re invested in, thereafter working out if these investments are right for you.

The value of investments and income derived from them can fall as well as rise. You may not get back what you invest.

 

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