Who's making money from your Pension?
How many people have you met over the years who have made a fortune from their pension investment strategy? None, I would guess. If I asked you how many people do you know who have done very well from property investment, I'd hazard a guess that you could reel off a long list. I've been working in this industry for over 20 years and have dealt with thousands of pension investors across all the main Pension Providers and I can honestly say very few have made a killing. Yes, over the years they will eventually show gains but they are typically modest. You might have a client who eventually accumulates a fund of €800k by retirement but you'll usually find that his total contributions are around 75% of that and certainly north of 50%. Of course there are exceptions and I understand there is a difference between the client who makes ongoing contributions and the person who invested a lump sum years and it may have trebled or quadrupled over 20 years. However, my general point is that not many people do very well from traditional pensions.
One reason is charges. In the past they were far higher but they can still take a sizeable chunk out of the fund over time. You wouldn't mind this if the advice and service justified it, but very often it doesn't. Another line you'll often hear is that you got tax relief on the contributions so yes you may have contributed X but it only cost half of that etc. Another more hidden cost are transactional/trading charges when stocks etc are continually bought and sold within funds. You don't come across too many struggling traders or stockbrokers.
If I were to suggest considering property as an alternative (through your pension), the Investment Manager would use statistics to show that equities outperform property etc etc BUT why do our eyes and ears tell us differently? He might refer to the most recent crash and the vast numbers of people who lost a fortune (through both property and equities / funds) and this a valid point BUT I might say that what caused a lot of the damage was investors being over borrowed. This is no longer possible in the current banking climate so when I suggest property investment through a pension, the maximum mortgage loan to value is 50%, it must be capital and interest (no interest only) and it must be fully repaid pre-retirement. These are tough rules and the lenders will stress test at high interest rates to protect themselves so not many will get 50% mortgages, in fact the majority won't even use debt. If I refer to the fact that the property investor benefits from both rental income and potential capital appreciation, the Investment Manager will tell me that equities receive dividends similar to properties receiving rent. However, this is not straightforward, if I have a property in Dublin 2 rented out and the property value falls 25%, I don't think my rent will fall by that amount (if at all) as it is not directly related to the value but is also driven by demand, demographics etc. Dividends on the other hand are directly related to stock prices.
So to return to the title - Who's making money from your Pension? Maybe it's time to consider taking more control yourself.
If you would like to discuss your situation in more detail, you can call me on (01) 293 7200 or contact me using the form below.