The Ups And Downs Of Pension Performance

The ups and downs of pension performance – Pensionfinder

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    The ups and downs of pension performance

    Generally, all investments are subject to some loss or gain.  Even cash can be eroded by inflation over time.  Investment markets have good times and bad times.  When a fall eventually comes the effects can be dramatic as we have recently seen with 2008/09 crash.  Then the British FTSE 100 recorded the worst year end results on record – down by more than 30%. As the markets fell around the world financial turmoil set in and subsequent global recession began.

    This fall in the markets made a big dent in our pension pots, with pension funds reporting negative return that year.  Companies too have felt the impact of the economic downturn on their pension scheme with many final salary pension schemes falling into deficit.

    Of course, equity markets can also be buoyant as they were between 1980 and 2000, when the stock market returns were in double digits, achieving real annual returns of about 12% in the UK and an average of 17.8% in the US.  The markets were so strong that some company’s took a contribution break as their pension fund had such large surpluses.

    The point to remember is that all investments can go down and up.  Ideally, your pension fund will see a long term trend of growth giving you a good return on your investment over time.

    Attitude to risk

    One important point to consider when it comes to pension funds and their performance is your attitude to investment -risk and return.  How much of a risk you are willing to take and what are the potential returns you want to achieve?  Generally, the more the value of an investment fund fluctuates up or down, the greater the potential for a gain or loss – the risk vs. reward equation.

    Your attitude to risk and reward will probably change over the course of your pension planning.  If your retirement is a long way off you may be willing to take a bit more risk as you should have time to re-coup any losses.  However, as you approach retirement you should probably move into less risky investments, as you won’t want to risk loosing your pension pot right before you retire. It is certainly best to speak this through with a financial adviser who is experienced at helping you understand the risk-reward relationship and what would best suit your personal philosophy.

    Don’t be complacent

    Even though the underlying investment will go up and down with the markets it is important to also realise that the returns achieved by some pension funds will be better than others.  This may be because they are slightly riskier, and so offer greater potential reward.  However, it could also be down to the skills and expertise of the fund managers.

    All too often people just pay their contributions and assume that is enough.  A combination of apathy and ignorance means that they don’t make the most of their pension savings.  To avoid disappointment you should monitor the performance of your pension fund and consider changing funds if you feel yours is under performing. A regular review with your financial adviser will help with this process.

    Of course the number and type of other pension funds available to you will depend on what is offered by your pension scheme.  However, as your future depends on how well your pension fund performs you should do all you can to optimise your returns in line with your approach to risk.

    If you are unsure whether your fund is doing well or need help choosing another option, you will want to get professional financial advice.

    Make the most of your savings

    Ups and downs in the investment markets are a fact of investing, and these fluctuations can affect your pension pot.  How much you’ll be affected will depend on several factors, including the level of risk you have opted for with your pension fund selection.  Pensions are a long term investment and you need to monitor your fund’s performance to make sure it is working for you.

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