90% of Workplace Pensions Underperform Index Benchmark

Over the last 30 years or so, there has been a gradual move away from guaranteed, defined benefit/final salary pensions to cheaper, investment linked pensions.  Previously, employees did not have to worry about investment funds, risk, performance and retirement options.

Today, it is very different with most employees being members of investment linked, defined contribution, money purchase workplace pensions.  Employees no either choose which funds to invest in or there are default fund options that gradually switch from higher risk to lower risk as you get closer to your retirement age.

Research by Investing Insiders has found that 26 out of 29 funds failed to beat the FTSE All Share Index (top 1,000 UK listed companies) and further research by FT Adviser (published this week) found that 13 of those same funds did not beat the index matched to the risk profile of that fund.

Comment

We have had discussions with many clients over the years as to whether investing in an actively managed fund and paying a fund manager (more expensive) is better or worse than investing in much cheaper index tracker funds where there is no fund manager, and the fund simply mirrors the chosen index.

In addition, is it time to force employers or the workplace pension provider to offer guidance, financial training/education on investment risk, fund choices and regularly reviewing.