Responsibility for pensions has shifted on to the shoulders of individuals over the past two decades, with investors expected to make more provision for their own retirement.
However, Bestinvest’s research identified a massive 113 serially underperforming pension funds, representing more than £31bn in assets – those that have failed to beat their benchmark over three consecutive 12-month periods in a row and also by more than 10 per cent over three years.
This type of underperformance, coupled with charges, means that many investors who think they are doing the right thing by making provision for their future are being short-changed and could end up with much less than would be possible if their money was invested more wisely.
For this reason, it is vital that individuals keep a watchful eye on the performance of their pension funds – only in rare cases is there a final salary pension scheme that offers a degree of security when it comes to planning the amount of income you will have in retirement.
"While there is little you can do about future changes in inflation and interest rates, you can take action by closely monitoring the performance of the investment in your pensions and make changes if necessary," Bestinvest said.
"It is vital to do this, as your standard of living in retirement is what is at stake."
To help investors maximise their retirement income, Bestinvest has named and shamed the worst-performing pension funds in the business.
Perhaps even more concerning are the 40 funds it dubs "long-term laggards". These funds have lagged their benchmark by 20 per cent or more over the last decade – far too long a time horizon for retirees who depend on their pension investments to produce the necessary level of income to live off when they leave work.
Mixed Investment 40%-85% Shares
The majority of the long-term underperformers sit in the Mixed Investment sectors; however, none have offended as badly as Mixed Investment 40%-85% Shares, which houses 31 of the 40 laggards.
The worst of the lot has been the Phoenix NPI Pensions Managed Series 2 Cap fund, which has returned 93.7 per cent over the last decade, underperforming its peers by more than 50 percentage points.
Other funds that have been particularly poor are the Phoenix Alba (BL) Managed Cap fund, the MGM Managed Cap fund and the Abbey Life: Hill Samuel Managed B fund – all of which have underperformed their peers by more than 40 per cent over the last decade.
According to FE Analytics, the MGM Managed Pension scheme only made 87.17 per cent over the last 10 years while the sector gained 93.47 per cent.
Performance of fund vs sector over 10 years
Source: FE Analytics
Flexible Investment and Mixed Investment 20%-60% Shares
The Flexible Investment sector and the more cautious Mixed Investment 20%-60% Shares sector each have four long-term underperforming pension funds.
Flexible funds that have consistently unperformed include the Phoenix Century Perpetual Managed Pension 3 Cap fund and the Phoenix Century Invesco Managed 3 Cap fund, while underperformers in the Mixed Investment sector include offerings from Phoenix Life and Windsor.
Phoenix Life had the second largest number of dog pension funds overall, with 15 making the shorter-term list. It was only edged out by Friends Life, which had a whopping 23 pension funds named and shamed by Bestinvest.
However, Phoenix had a larger number of long-term laggards, with eight of its pension funds disappointing over the last decade. Friends Life was just behind with seven of its pension offerings on the long-term list.
Friends Life’s worst-performing fund is FL Flexible Exempt Cap, which has underperformed its peers in the ABI UK Mixed Investment 40%-80% Shares sector by 40 per cent over the last 10 years.
Over the last decade, the pension fund has returned 80.1 per cent to investors, lagging its peer group by more than 13 percentage points.
Performance of fund vs sector over 10yrs
Source: FE Analytics
As Bestinvest highlights, many of these serially underperforming pension schemes are "legacy" pension funds that were acquired by pension fund consolidator firms that have taken on assets from former life and pension providers that have closed to new business.
"Sadly, these only represent the worst of the worst, so don’t assume that if your funds aren’t featured in this report they are fine. There are many more pedestrian pension funds that it might be worth considering switching elsewhere," Bestinvest added.
