The pension sausage factory
Do you know what’s in yours… or is it better not to ask?
Published
September 4, 2024
Where would we be without the humble banger?
You can’t have a fry up without them but it takes a brave person to think about what’s really in them.
It’s weird isn’t it? It’s not like they’re a niche product but you could go through life chomping away and never knowing what’s in there.
Maybe it’s because everyone else seems to be doing the same - how bad could it really be if we all seem fine with it?
In that regard, the jump from pork to pension can make a lot of sense.
How many of us actually know what’s inside our pensions? Are we a bit complacent about them, are they intimidating or do we just not care?
One reason you might not be able to immediately say what assets are in your pensions is because of just how many layers there often are between you and your money.
Take a typical workplace pension for example.
You might have a work portal to log into, a financial advisor making changes in the background for you, and a few simplistic options like “low, medium or high risk”.
At each step there’s cause for confusion or just a lack of detail. If you’re lucky you’ll click enough, and in the right places, to end up at a fund factsheet.
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Even then it’s likely you’ll come up against pages of jargon and might only be able to see the top 10 companies you hold in that particular fund.
The rest is a secret, you just have to trust the fund manager is doing their job well, the advisor is too and that you’ve opted for the right risk rating.
For a lot of people there’s just too much opportunity for a slip-up somewhere in there
Throw in the fact you probably have multiple pensions from different jobs knocking around and it’s no wonder we’re happier to chomp on the pension sausage without ever looking over the ingredients.
Another big reason we tend to avoid looking at what our pensions are actually invested in is because we’re a bit scared of what we’ll find.
Since the global financial crisis, bond yields have been very unattractive and a lot of investors (professional and otherwise) have opted for dividend-paying shares where the bonds used to be.
We’re big fans of dividends in the UK, to the extent that huge UK companies paying dividends have an enormous presence in our pension pots.
That’s not a problem in itself but those companies tend to come from sectors some investors have a problem with.
Banks, oil and gas, pharmaceuticals and tobacco are all big dividend-paying sectors. If you suddenly found out your pension money was invested in an area you are morally opposed to you might feel more than a bit miffed.
The thing is, if you don’t like what you see, there isn’t a whole lot you can do about it in most cases. Raising or lowering your risk profile isn’t likely to see changes in holdings, just the weightings towards equities and bonds in there.
There is one way to take the faff out of it all, manage what fees you’re paying the professionals along the chain, and decide exactly what you hold.
In a self-invested personal pension (SIPP) you have more visibility of what you’re investing in and transferring all your old pensions into it means everything’s in one place.
Leaving it to the workplace strategies can mean they do things like reduce equity exposure over time when you might not want to.
Of course that might suit you, and there can be benefits you lose out on by transferring a pension into a SIPP so it’s worth checking on if you’re thinking about it.
If you’re happy enough with the fees you’re paying at the moment and the assets you hold, that’s a great place to be in. If you’re not or you just don’t like how opaque it all seems, a SIPP could help.
In the end it’s about knowing where your money is and what it’s doing for you. It’s just not good enough to finally have a look at it all just as you’re about to retire.
You might find some things you don’t like in there, like high fees or a sector you don’t agree with. And by that stage it’s a bit late to want to change.
Just like you know what’s in your bank account, make sure you know what’s in your pension. If you don’t like it, you really can change it. And maybe take a deep enough breath to look at what’s in your sausages too.
Take control of your retirement savings with a Freetrade self-invested personal pension. Start a SIPP today and contribute regularly or transfer old pensions to one single pot you can grow and manage yourself. Download our iOS trading app or if you’re an Android user, download our Android trading app to get started investing.
Important information on SIPPs
SIPPs are a pension product designed for people who want to make their own investment decisions. You can normally only access the money from age 55 (set to rise to 57 from 6 April 2028).
This article is based on current rules, which can change, and tax relief depends on your personal circumstances. When you invest, your capital is at risk.
The value of your portfolio can go down as well as up and you may get back less than you invest.
Before transferring a pension you should ensure you will not lose valuable guarantees or incur excessive transfer penalties. Pensions are usually transferred as cash so you will be out of the market for a period.
Freetrade does not currently offer drawdown products for our SIPP.
