Pension investments?

[Rahres]

If you pay your money into a private pension, do they invest it? Do they not ring-fence any of your original investment? Why do they do this when it could risk decreasing your pension that you paid into?

I was set a pension up when I was a kid by my parents and now it's worth about 10k but it decreased £600 this year. I'm not sure I want them investing my money? I didn't realise this is what it was for? I thought a pension was just you paid money in and maybe got some interest on it like in a bank account, then you get it when you are older. It doesn't seem right that they can lose money you have paid in.

Should I change this?

The firm you choose invest it for you. Given the state of the world markets, that means it could go up or down. I suspect you can choose the investment options so you could put it in the equivalent of a savings account and earn minimal interest (but no losses) or you can gamble a bit more and invest it in various markets, which means it might go up or down, but over the long term, the ups outweigh the downs.

It really depends how close you are to retiring. Late 50s/early 60s I'd be less risk averse and put the money in a more stable growth portfolio. In your 20s/30s I'd assume it would still grow over time and this is just a reflection of the current markets.

You should have all this information already though. Contact whoever is managing your pension and discuss the options with them.

You could ask them to take some out into cash but within the pension or a cash fund (which is still an investment but reasonably safe). You say it has 10k in it but how much money has actually been paid in over the years. As an example re my gran she paid 2500 in 1993, nothing since then and now has 10k which granted has fallen from 12k this year. If she had just put her money in a bank account there is no way she’d have gotten 7500 in interest. Investments are a gamble but in the long haul usually produce a better return but then it’s gambling you don’t die/retire when they are at a low. I won’t go into the whole DC pensions ( defined contributions in versus investment output out) versus DB pensions (defined benefit where a known amount comes out based on actuarial factor calculations, wage etc) debate but there are drawbacks to companies offering the pensions of a DB offering. I think weigh up what you have put in in total, what’s still in there versus what you would have gotten in a savings account or ISA and if close or the investment comes out look rubbish then see an investment advisor about this.

make an appointment with pensionwise, who are a government service not trying to sell you anything. They'll also send you some leaflets/links that you can read.

yes, investments can obviously lose money. You really do need to read up on the basics. A pension is not a cash savings scheme - and they REALLY lose money as inflation is considerably more than savings interest and has been for a decade.

10k is peanuts for a pension but it is a start. You need to look at paying more in throughout your working life. The younger you start, the better you'll do.

10k is peanuts for a pension but it is a start. You need to look at paying more in throughout your working life. The younger you start, the better you'll do.

Yeah I'm early 20s and they were managing it for ages, never really explained it to me, then they've passed it all over to me to deal with now and it was so confusing.

Thanks

Tbf most people in my peer group don't even have a private pension so even with my measly 10k I am ahead of them 😂

It's with Scottish Widows BTW

@Rahres

Tbf most people in my peer group don't even have a private pension so even with my measly 10k I am ahead of them 😂

It's with Scottish Widows BTW

They'll have one if they're working so don't be so smug.

Pensions are a long term investment. Of course what you pay in gets invested. What else would a pension company do with it?

They'll have one if they're working so don't be so smug.

Jesus Christ, I was having a light-hearted joke, not being smug. Yes my friends say they have a work-place one, what I mean is they didn't have a private one set up before working to start paying into. Calm down.

Of course what you pay in gets invested. What else would a pension company do with it?

I really don't like your attitude. I ask genuine questions and get sarcastic answer, and then get called smug for having a joke
I never had pensions explained to me! I just thought you paid money into it and got interest on it, but that (unlike a savings account) you could only take it out once you reached 55, never before. I did not know it was an "investment" I thought it was savings. The leaflet confused me and then when I asked my grandma she said they don't invest all your money, just some of it, which now I can see is obviously wrong too...

It's an issue with the pension industry generally: we talk about "pension savings" when actually the savings are investments.

The vast majority of people don't realise their pension savings are invested. So well done for asking the question and thinking about how to approach it. I agree that the Money and Pension Advice Service (MAPS) is a good place to start.

Also take a look at the PensionBee explainers (please note: this is a provider and a commercial service, but they do good videos and straightforward articles. MAPS will be a good bet for a neutral approach).

And much as I dislike the Daily Mail, you could do worse than getting into the habit of reading their personal finance pages.

As you are young - assuming volatility doesn't scare you into making poor decisions - you can probably afford to take on more risk now and ride out the ups and downs.

Over the long term (and pensions are very long term) your money will go up if it's invested.

If you keep it in savings it will go down in value (because of inflation).

This year has been shitty, obviously, but you need to think about what this money will do for the next 40+ years.

Most pension investments took a massive tumble in Feb / March this year, many up to 20% loss, but they started to bounce back in April / May.

Your pension will have done much better than savings over the past few years.

You are young so you can afford to take a long view.

I don’t know how Scottish Widows performs, look up their performance review.

My pension did very well in Aviva and I have now moved to Aviva Platform which has lower fees.

Another advantage of saving into a pension is tax relief , if you invest £80 that will be grossed up to £100, if you are a higher rate tax payer you will also be able to claim back an extra £20 on your self assessment form. If you aren’t a tax payer you can still benefit and can pay £2880 in per year which will be grossed up to £3600. Which is a huge advantage.

Hello OP. Firstly, well done to your GPs for thinking ahead and giving you this headstart in your pension.
As others have mentioned pensions are a long-term investment and hence generally this means being invested in shares and bonds. In the long term this normally provides better growth than being in a savings account. If I were you I would look at fees charged by Scottish Widows, and if they are high I would move them to a cheaper provider. Do some research, plenty of money websites e.g this is money, moneywise, which money that can give you the basics and some general advice.