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Pension Fund Performance – Are All Pension Funds The Same?

If you have a Pension you probably understand that your Pension Fund to some degree is exposed to the performance of financial markets. When the world economy does well, your Pension rises in value, when it does poorly, your Pension falls in value.

But why do some people with Pensions do better than others, even during volatile times?

In this article I want to:

  • Explain how your pension is invested.
  • Look at the top and bottom performing fund managers.
  • Show you how small investment gains amount to large amounts of money over time that can allow you to retire earlier.
  • Give you practical steps to make sure you are not losing out.

The basics – what is my Pension invested in?

The basic building blocks of any Pension are pretty much the same. Pension funds can contain:

  • Equities (Stocks & Shares)
  • Bonds (Government or Corporate)
  • Property (Office, Retail & Industrial)
  • Commodities
  • Cash

However, it’s the mix of these elements within any Pension Fund that dictate the performance of the fund. For example, high equity content in the fund when times are good equals good performance. High equity content when the market is crashing equals poor performance.

Fund Managers then are constantly trying to see into the future to test which way the economic winds are blowing and make their investment decisions accordingly. Sometimes they get it right and sometimes they get it wrong. Over the long term well diversified Pension Funds make money, but some pensions make more money than others.

Does Fund Manager Performance make much of a difference to my money?

In a word, Yes.

We reviewed the investment performance of 6 leading Muti-Asset ESMA Risk Rated 3 Medium Risk Funds (multi-asset just means lots of different elements such as equities, bonds, cash etc in the fund…), and there was a difference of close to 5% over the past year (27/04/2019 to 27/04/2020).

  • 5% is a substantial difference in a relatively short period of time.
  • 5% on a €200,000 Pension Fund is €10,000 in a single year!

This illustrates that the judgement of fund managers can make a big difference, especially during times of exceptional market turbulence. And whilst a 5% difference is unlikely to be experienced every year, if you are not with the top performing fund managers on a consistent basis your pension fund will suffer long term.

So, what difference can being with the top performing fund make?

Forget 5%, let’s just look at something more modest like 2% per annum investment performance difference.

Let’s assume you have a Pension Fund valued at €150,000 and you are paying in €500 per month and looking to retire in 15 years-time.

  • If, net of fees, your pension fund grows by 5% per annum you will have a fund worth €447,784 in 15 years-time
  • If, net of fees, your pension fund grows by 3% per annum you will have a fund worth €348,636 in 15 years-time

That 2% per annum difference equates to €99,148 over 15 years.

Think of that €99,148 even in terms of time. That amount of money might mean you could stop working 3 years earlier than you originally planned. That’s about a thousand days of less work!

So, what should I do next?

Step 1 – You need to identify what pension fund you are invested in.

Step 2 – You need to get details on the charges & fees structure.

Step 3 – You need to compare your fund with similar funds in the same risk category.

Step 4- You need to make sure you are comfortable with the level of risk you are taking with your money.

Step 5 – You need to make sure your money is with the top performing and most consistent fund managers.

We can help.

If your pension is underperforming, we can help you with all 5 steps. We have been advising clients all over Ireland for many years now making sure they make the right decisions and have the right pension fund with a consistent track record. We hold agency appointments with all the leading pension provider in Ireland so are well placed to make sure your money is with the top fund managers.

Thank you for reading and take care.

Michael Coburn and Jim Doyle

Guardian Wealth

Serving the South East, Midlands, East Coast & Dublin

Email: mcoburn@guardianwealth.ie

Phone Joanne on 01 5260770 or 053 9110380