The worst pension funds in the UK

You don't want your pension tied up in one of these funds!

A pension is one of those things that's very easy to neglect. For starters, many of us leave it too late before even starting one, or make only the most modest of contributions. But even those of us who do pay a decent amount into our pension each month can get a bit lazy about it. When the annual statement comes through, it may get a cursory glance before being filed away or shredded.

After all, just paying into the pension is the main thing, right?

However, that can be a costly mistake. Just as important as the amount you are paying into your pension is where that money is being invested. And sadly there are a lot of pretty naff pension funds out there.

The worst of the worst

Hargreaves Lansdown looked at how the numerous pension funds have performed over the past decade, tracking their growth against the Retail Prices Index (RPI) measure of inflation. By that measurement, funds should have grown by 34.3%, at the very minimum, since 2001.

However some funds have seriously failed to reach that benchmark, in some instances by as much as 14%.

Let’s take a look at the five of the funds Hargreaves Lansdown has identified as the worst performers of the last ten years.

These are serious sums of money tied up in funds that simply are not delivering. Indeed, when you consider the average UK All Companies fund grew by a little over 53% over the same period, it really demonstrates what a disaster it may be for you to have your pension tied up in one of these funds.

Assessing your pot

If you feel that your fund is not up to scratch, it’s time to start thinking about moving that cash elsewhere. After all, if this money is going to have to pay for the 30 years you are planning to enjoy in retirement, you need to do whatever you can to ensure that pot looks as healthy as possible.

The first thing you will want to do is take a proper look at how your fund is getting on. Each year your pension provider will send you an annual benefit statement. This will demonstrate in black and white just what your pension fund looks like.

However, don’t just get distracted by that figure at the bottom – before thinking about moving your fund, you’ll want to be clear on exactly how much it will cost you to do so. Many funds have exit fees in place, so it may not be worth your while paying to shift your cash to a marginally better performing fund.

You should also look into any benefits you have with your existing fund. Some funds will offer Guaranteed Annuity Rates, and these are likely to be far more significant than the annuities you may be able to access on the open market. So again, it may work out better to stick with your current mediocre fund.

Picking a new fund

Once you have determined that you do want to move your cash to a new home, you need to work out where to put it.

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It’s always a good idea to diversify your investments. For example, you don’t want to put all of your cash into a fund focused on Latin America or China. All it would take is a bit of upheaval in that region, and you’d soon see the value of your investment plunging. So try to spread your cash so that it is in a couple of different funds, with different areas of exposure across the globe.

One thing to take into account is your own stage of life. If you still have many years to go before you can pack in work, it makes sense to go for a slightly riskier investment. This way you have the potential for significant long-term growth (though also for losses of course). Then, as you move nearer to retirement, it’s a good idea to move your money into safer investments, whether that’s conservative funds or solid asset classes like cash.

Of course, actually picking the specific funds is easier said than done. After all, there are thousands of different funds out there – how on earth are you supposed to distinguish between them? Thankfully it is possible to get past the advertising spiel and find out what really matters. Check out How to pick an investment fund for a comprehensive guide.

Get moving

Once you’ve decided where to move your pension to, it’s time to start filling in some forms. There’ll be forms to open the new pension, as well as additional forms covering moving over the old pensions.

Sadly, the transfer itself can take months to actually go through. The pension scheme administrators are obliged to get it completed within six months, but don’t be surprised if they drag their feet a little.

*Thanks to Buck Consultants for help with these tips.

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