Pssst, I’ll let you in on a little secret: want to know what the best possible investment is? Your workplace pension.
Now this is not a judgment on your default fund – more on how to review that later – but instead a big pompoms, cheerleading high kick for the scheme itself.
Because your workplace pension really is the place your money works hardest. You put money in, HM Revenue & Customs tops it up with tax relief, and your employer contributes, too. Triple the purchasing power on fund units or shares.
Your auto-enrolment contribution is set at 5pc and legal requirements mean your employer will add at least another 3pc, but some employers will match employee contributions up to a certain percentage of salary.
It is worth finding out the maximum your employer will match contributions to, and contributing as much as you can afford. A good time to increase your contributions is when you get a pay rise, or when you change roles or employer.
Most people leave their workplace pension invested in what is called the “default fund”.
This is the investment you get automatically enrolled into when you start work and the one that most people remain in unless they make a decision to change.
It will be designed to maximise returns for a set level of risk, and in the accumulation phase – that is, while you’re still working and far from retirement – it tends to be invested mostly in growth assets such as equities.
Each employer will choose which company they wish to provide their pension scheme, or if you work in financial services, some asset managers will run their own.
There is a default pension provider called Nest, which has been set up by the Government and looks after 12 million people’s pensions from more than 900,000 businesses.
So, you may be lucky and find that though you’ve had a series of employers, each time they’ve plumped for Nest and all your money is with the same provider… or you may not.
Which leads me to consolidation. The biggest reason to consolidate is admin. But which basket do you decide is worthy of all your eggs?
Helpfully, there is an annual report which can help you compare your pension providers. Independent Governance Committees (IGCs) produce a report once a year on behalf of the regulator.
In accordance with a set structure and parameters they will assess your pension provider on investment performance, whether those investments are appropriate – also called product suitability – stewardship and ESG considerations, client communications and the support your provider offers scheme members, as well as costs and charges.
There will be a conclusion which takes into consideration all of these factors and whether your provider is offering you value for money.
You can also compare performance of your default fund reasonably easily – most defaults are designed with around 80-100pc in equities or higher risk assets in the accumulation phase, so it is a case of apples to apples.
The last five years have been testing for fund managers – the pandemic, war in Ukraine, raging inflation – but they have been the same set of circumstances for all.
Which of your schemes has delivered the best returns over this period? How does that compare to the comparator or index provided in the literature?
The most important things to remember: read your IGC reports, compare your schemes, consolidate where needed and maximise your contributions.