Pension Equity Funds - Still a good long term investment?

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L0llip0p

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I started paying into a pension last year (Standard Life Equity Fund).

I'm contributing 2% towards my pension, and AVC's of 13%. The company contribution is 5%.

I'm only 28 so "they" say long term it wont make much of a difference but its hard to ignore this when stocks are taking such a pounding....

What should I do? Stick or move?

Maybe drop the amount of AVCs I'm investing??
 
Peter - you seem to have a poor understanding of how equity investment works.

In an 82-year period, from the start of 1926 to the end of 2007, the S & P 500 index went up in 59 calendar years and down in 23 years. So, in more than one in four years, anyone tracking this index would have seen negative returns. In one instance, the index showed negative returns for four consecutive years following the 1929 Wall Street crash.

Yet in that 82-year period, the index rose by an average of more than 10.3 per cent per year. In other words, despite 23 negative years, the average after 82 years was still strongly positive. Inflation over the same 82-year period averaged just over 3 per cent per year, so the real return was well ahead of inflation.

You seem to be caught in the understandable trap of those who don't understand - thinking that when markets and pension funds fall in value, that the system has somehow failed.

In the pension & investment business, you'll hear the mantra "fund values can fall as well as rise" a lot. If you can't accept the fall part, you should stick to lower-risk assets.
 
I think many people share the same concerns as Peter.
Yes in the long term shares rise, but there are some significant windows during which they are flat or fall. Your example of the S&P 500 is a scary case of this:
It peaked in 2007 and has now fallen back to 1997 levels. A decade of growth wiped out!!!
http://finance.yahoo.com/echarts?s=^GSPC
How scary it that?
At the end of the day, when I retire I don't want a pile of shares, I want an income stream. Ideally a reasonable % of my final salary and one that is protected against inflation. More & more I find myself wondering is an equity based pension the best way to provide this?
 
Given that the typical duration of someone's working life is probably 40 years and that they might be making pension contributions for 30+ of those, I'd say that equity based funds would still be appropriate for the early years, switching to lower-risk assets at a suitable point some years prior to intended retirement.

That said, there are plenty of non-equity alternative pension funds available for those who aren't comfortable with the volatility, but still want to avail of the tax reliefs.
 
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