How the hacking scandal may damage your pension

The size of your pension pot may have been hurt by the antics of News International journalists!

One story has dominated the newswires over the last couple of weeks, getting far more coverage than even the potential collapse of the Euro: phone hacking.

And what started out as a relatively minor story a couple of years ago, with the hacking of voicemails of young members of the Royal Family, has now ballooned to the point that it has brought down the Government’s Director of Communications, the Commissioner and Assistant Commissioner of the Metropolitan Police, and a 168-year old newspaper.

Unfortunately, it may also have an impact on the size of your pension.

Launching a takeover

Rupert Murdoch’s News Corporation already owns 39% of the broadcaster BSkyB. However, in June last year the firm moved to propose a full takeover, a move which raised all sorts of competition concerns.

It also gave BSkyB’s shares a hefty boost. Back when the takeover bid was announced, the share price stood at 601p a share, even though News International’s initial bid was valued at 700p a share. The share price then began an impressive ascent, peaking at around 849p a share back in April.

The impact on your pension

And a number of big pension funds have some serious sums of cash tied up in shares in BSkyB.

For example, the Aegon UK Opportunities fund, a fund of more than £50m, currently has 3.3% of its cash invested in BSkyB, its eighth largest investment. Then there’s the Skandia Global Best Ideas fund, nearly £26m in size, which has devoted almost 3% of its fund into BSkyB, its largest holding. Indeed, Skandia has gone on the record to confirm that it has a total of £23.3m invested in the broadcaster.

Biggest of all, the Special Situations fund from Fidelity, a large unit trust of nearly £3bn, has 5.7% of its fund invested in BSkyB.

Some firms had already made the decision to bail out – reports suggest that Odey Managed Funds sold the best part of six million shares in BSkyB before Murdoch ditched his takeover bid, a holding worth the best part of £50m.

A question of timing

So the shares have lost a fair bit of value over the last couple of months, which could cause an unpleasant dent in the pensions of those who have invested in funds like those I’ve already mentioned. And for those on the point of retirement, that will directly impact the annuity they can buy, and therefore the income they’ll enjoy for the rest of their lives.

But then again, if the fund was bought early enough, they will still be looking at a healthy return on their cash – a couple of years ago BSkyB shares were going for about 540p a share. Getting 700p now (or even 740p, as it is at the time of writing) is still a result.

Just how many pensions have suffered from all of this all depends on exactly when they invested in BSkyB, and whether they got out when the shares were at their peak.

Related how-to guide

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That’s the whole art of investing – knowing when to buy and when to sell, appreciating that the value of investments will rise and fall. BSkyB’s shares may have fallen of late, but the fact that it is a near certainty that at some point Murdoch will be back to try again will most likely help them remain attractive to fund managers for some time to come. Given that in 2010 it reported profits of £845m, it’s arguably an attractive business in its own right anyway.

Ditching managers

Whether your pension is invested in BSkyB or not is unlikely to be your decision – it’s down to the guy managing the pension fund in which you have invested.

The fund managers who make the big decisions on where to put the fund’s cash are very well paid, but sadly more often than not fail to deliver. A study by research firm WM Company last year found that over the course of twenty years, a whopping 82% of managed funds failed to beat the market. Part of the reason that these fund managers underperform is that they don’t just focus on their best ideas, as we explained in You can beat the professional investors. That means that, for the vast majority of us, we are paying a fund manager to make decisions that lose us cash!

That’s one of the reasons we always promote index trackers here at lovemoney.com. These investments follow the movements of the index itself (the FTSE for example), so while you’ll never actually beat the market, at least you won’t fall quite so short of it as you will with many managed funds. For a full guide to the pros and cons of index trackers, have a read of Six great reasons to choose an index tracker.

Do it yourself!

However, you can take full control of exactly where your pension is invested yourself, by taking advantage of a Self Invested Personal Pension (SIPP). SIPPs allow you to invest your pension funds into all sorts of different things, from individual shares to funds to property. And it’s completely up to you where to invest.

SIPPs always used to be the sole preserve of those with large pensions, but with an increasing number of low-fee providers entering the market, many more of us now have the option of taking a hands on approach to our pension. Be sure to check out The best Sipp for your retirement and How to put together your SIPP.

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