I have watched the last few months of pension investments go down a complete black hole -- with each contribution the fund value ends up lower than before the contribution was made. Not to worry, I have heard from many quarters, a pension is a long term investment. Well, I've had mine for sixteen years, and am about the same amount away from retirement, so you could say I am half way through.
After the first eight years, my pension was switched from one company to another (both of whom shall remain nameless) on advice that the first company had much too high charging structures. At the end of that eight years, which happened to coincide with the end of the tech stock bubble, my pension fund was worth less than the total contributions made to it. Now, another eight years on, it has been completely hammered again. Even the terrible five and ten year performance figures for pension funds don't tell the whole story. Typically, one invests more in a pension as one's wages increase. So a lot more money has been invested in the past few years than previously. Money that has been invested in the past two or three years has been almost completely wiped out. At this point, if I had taken all my pension contributions, and instead of paying them into the pension had paid 41% tax on them, and stuffed them under a mattress, they would be worth more or less exactly what the pension fund is now worth.
So, what are the prospects for the future. Well, if the pension company's projections about expecting 6% growth (the first company used to send projections about 12%, LOL) turned out to be true for the *next* sixteen years, unlike the last sixteen, my pension would still be a pittance, because the performance has been so poor to date. However, what's the likelihood of even THAT? The economy could dawdle for years in the current recession, there will quite likely be at least one hammering of the market in sixteen years, and one is not advised to leave pension money in high-risk-high-return equities for the whole duration anyway.
So, I would say, think long and hard about a pension. I know of award-winning pensions salespeople who DO NOT HAVE PENSIONS -- they don't believe in them. That's not to say you should just bury your head in the sand and do nothing -- you have to have SOME plan, and some investment, but don't imagine that you are buying something bullet-proof by paying a fund manager to manage your money. Also, to those who say "but pension contributions are tax-free" ... yes, but only on the way in, not the way out, and that saved tax has to be invested wisely or it will not be a gain. As somebody said above, be careful that the tax-free element is not just a subsidy to fund managers to persuade people to fund their own retirement. Make sure you understand what you are being charged to have your money managed -- many people have no clue what they are paying, and assume that all pensions are similar. You want good value, as with anything you buy.
And finally, although pension laws have been liberalised in recent years, there are still constraints on what you can do with your own pension money at retirement. Take this into account when comparing against other options.