Where have I put my pension?

What an earth do I do with my pension?

Pension funds can be difficult products to pick. Most people use a financial advisor. I chose my pension fund without a financial advisor and here is the criteria that I used:

During May 2016 I wrote several articles related to pensions. These included topics such as being proactive with your workplace pension, taking full advantage of the matching scheme, transferring your pension between employers and how to pick a fund to be invested in.

I recently moved jobs hence all of the above articles. My pension is now invested in a passive North American equities fund. It took me quite a while to actually pick my fund and I wanted to explain why.

What choice of funds do I have?

Firstly I was limited in my choice of funds provided by Scottish Widows as they are my pension provider through my new Company. Scottish Widows as well as providing their own funds provide funds from other pension providers. I was cautious to ensure that I was picking a Scottish Widows own fund as an alternative would likely have been more expensive as Scottish Widows would have to add their margin onto the charges.

Can I get a discount on my fund through my employer?

Once I'd found all of the Scottish Widows funds I contacted the pension provider to find out which funds would I receive a discount on the charges. The discount is given on those funds that my employer has negotiated a cheaper rate. This left me with about 20 different funds. 

What are the annual management charges?

I searched through all 20 funds and found a few funds were relatively cheaper with the discount. I was looking for funds that would charge under 0.4% annual management charge and not charge any additional fees to move my previous pension into this one.

Passive or active fund?

The next criteria for picking a fund was that I wanted a passive fund that would track an index rather than having a fund manager tweaking my portfolio here and there. I find it hard to justify the additional fees (anywhere between 1% to 5% extra) to be invested in a fund that is actively managed by an investment expert. 80% of fund managers fail to beat the market. As a result, I'd rather go with probability and BE the market instead.

Does this historical performance of a fund matter?

The historical performance of a fund is arguably no guide to the future. However it's worth taking a look for two reasons. One, it's interesting to see how good the fund was at tracking it's intended index. Two, what was the decompounded annual rate of return of the fund? This is important to give you a small indication of what you might expect (note the words "small" and "might"). The fund I was looking at tracked the index very closely, at worst only 0.1% out and in most years earned the same return. In one year it even beat the index by 0.1% however this is unusual.

Should I try to predict the future?

Finally, you're investing in the fund over the long term (10-40 years). As well as being able to take more risk you need to consider which market the fund tracks is likely to perform well over the long term.

As I'm investing over the next 30 years I wanted a Western World economy as they have a stronger proven track record. I have concerns over the long term progress of European and Japanese economies and so a fund that tracks the North American equities made more sense.

As a quick additional point, I chose equities rather than bonds or cash as I'm inventing over a long time horizon and as such can afford to take on more risk.

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