Have you got the right pension provider?

All businesses must have to have a compliant pension scheme for their staff as part of auto enrolment legislation, but not all compliant schemes are equal.

The charging structure, paid by your employees, differs widely from scheme to scheme and so does the investment performance of the default funds where your employees invest their contributions.

Most staff that are enrolled into their workplace pension do not change their investments away from the default fund, so, picking the right default fund is really important to the retirement prospects of your employees and after all, we will pay tens to hundreds of thousands of pounds into these schemes over our working lives.

Choosing or reviewing your scheme isn’t that easy as the market is complicated and very uneven.  Some schemes, only offer one single investment option to your employees, whereas other providers offer hundreds and even thousands of options.

The chart below compares some of the most widely used default funds from across the market.  The chart plots performance of these funds over the last five years: –

 

 

 

 

 

 

 

 

 

 

The difference here is huge.  If one of your employees had £10,000 at the beginning of this period, they would now have around £14,900 if they had invested in the fund A, compared to just £11,600 if they were in the fund E.  Compound these differences over a 30- or 40-year career and the effect will be massive.

You should note that if you have a scheme like fund A, your default fund isn’t necessarily the fund shown in the chart above as there are lots of different options available.  This is also the case with most of the other funds shown on this chart.

But Ok, past performance isn’t necessarily a guide to future performance and investment funds can go up as well as down, but there are funds and solutions that are better positioned to produce good performance compared to others and there are funds that have consistently proved this over a sustained period.  The same can be said of poor performing funds.

If we bring charges back into the equation, the more expensive schemes aren’t necessarily the better performing ones.  For example, depending on the size of your business and the level of contributions being paid, fund D can be one of the most expensive schemes on the Market, but as you can see from the chart it’s performance over the 5 year time period doesn’t appear to justify this.  That said, fund D is often a suitable option for certain types of businesses, but not necessarily yours.

If you are not sure how well your default fund is performing, or whether your scheme is suitable for your business or its employees, please get in touch for a free, no obligation review.

If you would like to know more or want a review of your current pension provider contact support@garbutt-elliott.co.uk