A review of Ireland’s best private pension funds makes for shocking reading. Only five years earlier funds were performing similarly, but suddenly there is a spread of -3.4% to 20% in returns. What is causing this remarkable difference in performance and what can you do to make sure your pension is safe?

Everyone looks forward to a comfortable retirement. Days of sun, sea and sand await, with that well-earned pension to spend. What if the pension fund isn’t as full as you expected?

The difference between Ireland’s best pension plans and the worst is stunning. Even more remarkable is how little people know about their pension fund’s performance and why it will affect their retirement plans. So, how is your pension doing?

To find out, you should schedule a pension fund review every 3 – 5 years. A sudden drop one year can be offset by gains the next, so every five years is a good marker for overall performance. What is certain is that your pension fund performance decides the amount of savings you will have in retirement.

If you are planning a comfortable retirement, you need to see your investment money working today. It may seem an obvious thing to say, but it is remarkable how money people don’t review their pensions. Burying your head in the sand and hoping for the best is not the way to a comfortable retirement.

We aim to highlight where the best private pension performance has been and to statistically compare pension providers over the past 20 years.

Time to see what’s happening out there

The 2021 review of pension fund performance over the 20 years to 2020 is a real eye-opener. Up to 2015, pension fund holders could be reasonably secure in believing their fund was performing well, and it wasn’t always clear who the best pension fund provider was in Ireland.

But during 2015, and every year since, pension fund performances began to diverge. Who are the best performers, who are doing fine and which fund is propping up the league?

It is in your interest to know as it is your pension fund at stake. Below is a line graph mapping the divergence between funds.

Pension Plan Performance 2000 – 2020

This pension plan data is based on trailing performances over a 20 year period up to 31 December 2020

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The best performing pension funds

What is the best pension plan in Ireland?

The best pension plan in Ireland in recent years is the Merrion Investment Management fund. It is a clear winner in the overall growth stakes with an incredible 21.7% growth in just 3 years. Coming into the beginning of 2000 it was performing well, second on the list with a growth rate of 5.4%. Only Zurich Life was doing better at 6.1%, while the average increase was 4.9%. Little divergence here.

Merrion Investment Management grew like all funds over the next ten years. At the halfway mark, 2010, it was at a rate of 8.7%, still above average fund growth of 8.5%. All Irish pension funds were on a steady if unspectacular growth path as the economy went into recovery from 2010 to 2015.

Over the last five years, Merrion pulled away from the pack and had a return of 21.7% between 2017 to 2020. While three years is a short timeline for judging, 21.7% is spectacular growth. It is worth noting that the overall average over the same period is just 6.2%.

A huge difference if you want a nice pot to live off when you retire. But will these funds continue to be the best pension plans in 2022 and beyond?

Average pension fund performance

Davy Asset Management kept a steady ship over the 20 years. It started off the period with a rate of 4.5%, just below the overall average of 4.9%. Funds around Davy, such as Friends First/ BMO and Setanta Asset Management were performing just as well, if not spectacularly.

Over the years Davy stayed on a sure tack. At the ten-year mark it had a return rate of 9.1%. Such growth put Davy second on the graph behind Merrion Investment Management, but the average in 2010 was just 8.5%. In tough times any growth is good and is what every investor hopes for from day one.

By the 2017 to 2020 period Davy Asset Management fell back to around the average mark. It returned 6.3% in 2020, only barely above the average growth of 6.2%. Growth is growth, but your money could have done better. Average may be ok, but not when other pension funds are taking off.

The worst performing pension funds

There is a tie for the worst pension fund, at the bottom place in the league. There’s no doubt that either fund would gladly let the other have the title. Propping up the table is never a good place to be, and after 20 years of seeing other pension funds growing by at least 3%, it is definitely not a good outcome. The average growth in pension funds in 2020 was 6.2%, but both Setanta Asset Management and New Ireland came in at -3.1%.

The drop in performance wasn’t a one-year blip. Both funds had been on the slide since 2015, with New Ireland being a poor performer since 2000, the first year of the survey. It just goes to show how regular reviews of your pension fund performance are vital.

It has been said before, and it will be said again, but your pension fund performance determines the amount of pension savings you have in retirement. Trusting your contributions to an under-performing pension fund will come back to bite you.

Why is there is such a difference in pension fund performance?

What causes your pension fund to grow? How come some funds consistently return high growth figures while others scrape along at the bottom? There seems to be a presumption among Irish pension holders that all funds grow at the same rate. Obviously, as the figures show, this is not so and being in the wrong fund will cost you in your retirement.

Irish pension funds consist mainly of government bonds, pension fund reserves, and debt securities. Financial derivatives, currency and deposits, equity and non-financial assets make up the balance. It is vital to ask your pension fund manager what builds your fund. If your fund relies on making any returns on low-performing assets, your retirement could be in trouble.

We don’t have to look back too far in Ireland to see how disastrous it is to put all your eggs in the one basket. You cannot keep hoping that one market or another will suddenly kick off, and your pension fund will go with it. Growth differences between funds will directly decide what you will enjoy in retirement, and you need to be on top of this, today.

Your rate of return makes a huge difference to your overall pension health

Someone once said that ‘it will be alright at the end of the day.’ Unfortunately, hoping that it will, and the reality can see two, very different outcomes. The money you trust is growing in your pension fund may be doing so but not at the rate you expect. Taking a look at the returns in the Irish pension fund market over a recent ten-year period can make sobering reading.

For Example: If you invested €100,000 from the beginning of 2012 to the end of 2021, you would hope to see a decent return. A fund of €206,501 with Friends First looks good, a little over the doubling of your money. The average return, though, was €260,763, a difference of over €54k, and a sizable amount if you were in the wrong pot.

When you look at the difference between the worst and best, Zurich Life at €327,249, you’ll see a disparity of over €120k. Now comes the time for head-scratching. Why is one fund doing so well and others just not performing? Even more importantly, you should be asking where is my money and why am I not seeing such gains?

What else is stopping your pension from being profitable?

An obvious answer here is what investments your fund manager is making with your pension money. Slow growth, after all, comes from poor investment planning. There are other factors which affect your fund’s profitability too – knowing what they are and addressing their impact can save you money.

Broker Management Charges

Broker Management charges and Investment Management charges vary from 0.5% to 1.5% annually. When dealing with figures in excess of €200,000, a small percentage can be a sizeable figure. If you factor in these charges on an annual basis, their impact on your fund’s profitability can be significant.

Remember too that they are payable, even if your fund is in the red.

What can you do?

Review, review, review and then review some more is the order of the day. We have a free pension review service available to the public which allows our experts to figure out how to make your pension grow faster.

Of course, you cannot judge a pension fund’s performance on a one or two-year tracking. You can, however, get a good idea when you have the data for five or even ten years. It is very advisable to sit down with your pension manager at least every five years and review the fund.

Ask an independent financial adviser to look at your fund and comparable ones in the market. Don’t be shy about charges and see where you can save money. If a better performing fund is within your risk range, then move your fund to the one with a better track.

It is too late to do this after you retire, so don’t hang about.

Don’t be scared to move provider

Often the fear of moving your pension fund is a lot worse than actually doing it. Legislation is on your side, and the time to do so is now, not in another five years when your fund is still underperforming. Getting the best advice means acting on it and taking control of your pension fund.

Moving to a better performing pension fund could be the difference between an ok retirement and a comfortable one. The returns from a top of the range, best performing fund and that of the average or worse are considerable. You could be missing out on €300,000 over a ten-year period.

A huge figure no matter what your expectations.

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