I retired last summer and have, among other pensions, a stakeholder pension, which I was perfectly happy with for many years. However, last April it began to lose value, falling by 10% between April and August. After that, there was a reasonable return to previous form, but recently it’s down again by another 4%. I no longer contribute to the pension and will need to take the full lump sum within the next tax year.
My question is: do I sit still and hope for the best? Or should I be contemplating a transfer to another provider who might do better?
I also have a Sipp that has performed a lot better than the stakeholder pension since April, and I am beginning to believe splitting the money among better-performing funds might be the answer.
I’m aware of the short timescale involved here, but having too much time on my hands is making me nervous!
It isn’t a surprise that the value of your stakeholder pension fell between April and August last year, because stock markets fell then as well. They’ve also fallen again since that time. This means that most investment funds, which are invested in shares, would have fallen.
If your Sipp performed much better during the period, this would suggest that your Sipp investments might be invested less in shares and more in other areas such as fixed interest or property.
The important point in terms of the performance of your pensions isn’t so much the stakeholder or Sipp wrappers themselves, but more the underlying investment funds you select within those wrappers.
Within a Sipp, in particular, you will have lots of investment choices and at any given moment it is likely that some funds available in the Sipp will be performing badly and others will be performing well.
If you’re worrying about short-term performance, this would suggest that you are taking too much risk with your investments.You therefore need to address this.
You need to decide exactly what to do with your pensions. Do you want to keep them invested? Do you want to take your tax-free cash entitlement? Would you prefer to start taking an income or to buy an annuity? Once you’ve decided what you want and for how long you are likely to remain invested, this should help you pick the best investments for you.
You can then determine whether those investments are available in your existing pensions or if you should move to another product.
There are lots of choices open to you and, assuming you’ll be relying on your pensions in the future, these decisions are too important to get wrong. I would therefore suggest that you take independent financial advice.