How Do You Know If A Pension Fund Is Performing?

[Wren100]

We are constantly advised to pay more attention to our pensions than has been the case up to now, but just how should a lay person judge whether or not a pension fund was performing well or badly? What criteria would you use? My own AVC, for instance, appears to me to be doing ok, but is only about 1200 euro ahead of total contributions. On the other hand, when you take out the tax relief I've received over the years, It's probably worth about 10,000 more than I've actually parted with. That sounds pretty good to me, but is it?

 

[Jim2007]

We are constantly advised to pay more attention to our pensions than has been the case up to now, but just how should a lay person judge whether or not a pension fund was performing well or badly? What criteria would you use? My own AVC, for instance, appears to me to be doing ok, but is only about 1200 euro ahead of total contributions. On the other hand, when you take out the tax relief I've received over the years, It's probably worth about 10,000 more than I've actually parted with. That sounds pretty good to me, but is it?

I would suggest that you need to broaden your concept of paying more attention to you pension and consider the question "How will I finance my retirement?". Your contributory pension will of course be a major part of that, but not the only part - there will be additional savings, possible downsizing of your property and so on.

With the time horizon involved and all the changes in tax law, return on assets and so on it is a difficult task to do, but that does not mean that you should not do some 'back of a napkin' calculations every now and then to see how it is going on.

Lets for arguments sake say you reckon that you'll need about 20K pa to live in retirement and at present rate your pension is projected to pay out say 12K pa. That means that you have a shortfall of about 8K pa that you need to plan for... To cover the shortfall you might decide to make additional contributions to the pension fund, save more or what ever. The objective is to identify a possible problem as early as possible so you have more time to correct it. The earlier you identify the issue the less painful it will be to correct it - discovering you may have a shortfall at 40 versus 55 gives you an extra 15 years to deal with the issue.

When it comes to the pension fund itself, you need to keep in mind that over such a long period - say 30 years, all funds go through good and bad periods, the main thing is that you know what is going on are aware of it's impact on your over all situation. Having said that, though there are things that will impact your pension fund no matter how it is performing, such as the management and administration fees - basically the lower they are the better for you. I'm sure someone a knowledge of Irish pensions will address issue better than I, as my knowledge is of the Swiss funds.

Good luck,

Jim.

 

[Baracuda]

+1...Good advice Jim!

Here is a usefull guide that Moneymate has on their website [broken link removed] I find it quite usefull when comparing funds...only thing is that this is based on past performance. A good example of what I mean is the Evergreen fund which was one of the top performing funds in its catagory in the 80's and 90's but then around 03 an Austrailian fund management company poached a few of their managers and since then the fund has lost a lot of ground. Fund manager performance changes all the time, its easy to look back and say they done a good job but its impossible to perdict what their future performance will be.

For me the main question is; What level of back up service and advice can that company provide for a client? what is their complaints attuide like if something goes wrong? etc etc.