Pensions - managed vs unmanaged

[Biggles78]

Hi,
I've had an old Legal and General pension for a while now, which has been left dormant after I left my old workplace. I've spoken to a financial adviser about using a private pension via my managed company. He recommended St James' Place. The old L&G pension charges .25% net, whereas the SJP charge around 1.9% net but generally offer higher returns.

I've done some digging and calculated the past 5 years performance on the fund I've recommended by the adviser and my existing pension fund, see below - figures based on a £10k initial investment - see https://ibb.co/jECXva

Interestingly the managed funds are less profitable over the first 3 years, but over 5 years they work out better in this instance. I just wanted to get some opinions on whether the higher management fees for managed funds are worthwhile in the long term?

From what I can see if the market does well, then the fund managers are worth paying extra for, but if you suffer low returns over a long term you'll be worse off. My current pension plan allows me to leave whenever I want, whereas the managed one doesn't allow transfer without an exit penalty.


Thanks

[northernladuk]

But there must be funds that return just as much on the lower charge platforms so your money grows even faster??

[Lambert Simnel]

The old L&G pension charges .25% net, whereas the SJP charge around 1.9% net but generally offer higher returns.

that sounds like quite a low fee structure on the L&G (presumably a tracker based arrangement) and quite high for the actively managed SJP one.

Depends on your level of belief in fund managers' abilities. I've been working in Finance (and related) for over 20 years and my experience of the expertise and professionalism in the sector is such that personally I stick with low fee index trackers. I'd leave it in the L&G personally, unless there's something I'm missing (such as they're holding it all as a UK cash & Greek bond mix)

[FarmerPalmer]

What is the name of the managed fund ?

If if does better over 5 years than 3, it means it did better for 2 years 3 years ago, and hasn't been doing so well in the last 3 years, so may find it doesn't do so good in future.

You need to look at individual years and compare to what the market did in those years, and if it has consistently outperformed the market, of just outperformed for 1 year, and has underperformed for the rest.

[FarmerPalmer]

looks like it might be this one:

https://www.trustnet.com/Tools/PDFVi...PFJ0%26univ%3d


You might be better with a Vanguard lifestrategy fund, e.g.

https://www.trustnet.com/Factsheets/...fundCode=ACFDQ

or

https://www.trustnet.com/Factsheets/...fundCode=ACFDT


Just an opinion, not advice.

[BigRed]

All managed funds will quote a possible return based on previous carefully selected periods. If all fund managers performed the same the charges would be the differentiator. Average return on the market over the years is 7% so the difference in charges between 0.25% and 1.90% is massive when compounded over the years.

In general a low cost index tracker will outperform most managed funds over time because of this difference in charges. If you can predict the ones it doesn't outperform then you are a winner.

[Biggles78]

looks like it might be this one:

https://www.trustnet.com/Tools/PDFVi...PFJ0%26univ%3d


You might be better with a Vanguard lifestrategy fund, e.g.

https://www.trustnet.com/Factsheets/...fundCode=ACFDQ

or

https://www.trustnet.com/Factsheets/...fundCode=ACFDT


Just an opinion, not advice.

Cheers Farmer,
Looking at the FTSE 100 over the past 5 years, the returns year on year haven't been so great

FTSE Tracker
Month Year Index Change
Jan 2011 6000
Jan 2012 5,686 -5.23
Jan 2013 6288 10.59
Jan 2014 6500 3.37
Jan 2015 6700 3.08
Jan 2016 6085 -9.18
Jan 2017 7118 16.98

From 2011 to 2017, an 18% increase.

Looking at the L&G Distribution Fund (EAZY), the return is 14% over the same period, so this fund hasn't performed so well.

The SJP fund over the same period has returned around 23%, in this instance the fees are worthwhile.

Haven't heard of Vanguard before, will have a look into them.

Thanks

[Andy Hallett]

Mix of trackers and aggressive managed funds. Increase the former the close you get to retirement.

[IR35 Avoider]

There's a reason why in both the UK and the US there is a legal requirement to say past performance does not predict the future.

You should never take past performance into account when choosing investments. (And there's a reason why the finance industry wants you to think performance can be predicted from the past. It facilitates them inserting themselves between you and the source of you investment returns, where they can rake off for themselves whatever percentage you will tolerate, in your mistaken belief that having them there is going to enhance your returns.)

When choosing between similar investments (different funds that invest in the same type of assets and are similarly diversified) you should only look at how much they cost, and choose the cheapest.

Almost every book you can buy on investing will confirm what I've said above, the grand-daddy of all of them (which has been saying it since the 1970's when index funds were invented) is "A Random Walk Down Wall Street." It's an American book but the basic principles apply everywhere.

I suggest leave the money in L&G and read that book before doing anything.

https://en.wikipedia.org/wiki/A_Rand...wn_Wall_Street

https://www.amazon.co.uk/Random-Walk...wn+wall+street

There are also older editions in Amazon, you may be able to buy a used copy of one of those cheap. No need to have the latest edition, the differences are not important.

[lukemg]

WTAS - Good advice on here...

'whereas the SJP charge around 1.9% net but generally offer higher returns.' - AAAARRRGGHHH

There is NO way on this earth they can guarantee this higher return and I don't care about the past performance. These charges will absolutely cripple your returns and make SJP rich at your expense, you would be mad to agree to this.
If you want to be sure, put same amount into VWRL (global tracker ETF) with a cheap platform (II, HL - ok for ETF's) and reinvest any dividends, you can have my car if it's not worth more in 15 years time...