Over the years, I've spoken to thousands of people about their pensions. What never ceases to amaze me is this!
It doesn't matter whether people have £30,000, £130,000 or £300,000 in their pension fund, they just don't engage with their money in the same way they would if it were cash in their current account.
I hear comments like "I'll get around to it"; "It's not worth anything"; "I know I should take more interest in it".
Yet despite fortunes being locked away in a virtual drawer marked 'Do Not Open Until 65', the money in your pension fund is just as valuable as the pound in your pocket.
Until You Start Thinking Of Your Pension As Cash, Chances Are You'll Lose Out
The vast majority of pension money is held in stockmarket funds. Last week, I illustrated the volatility of stockmarkets around the world in an article entitled The Best And The Worst Stockmarkets In 2013.
So in an attempt to help you get a handle on how the stockmarket investments in your pension have been doing in the last five years, I've run a comparison of the key areas. Hundreds of billions of pounds is currently invested in the sectors shown below.
Investment Returns For The Key UK Pension Fund Sectors
Sources: Fund Performance Figures from Financial Express Analytics 06.04.13. UK Retail Prices Index from Trustnet May 2013.
What Does The Table Tell Me?
- The ups and downs of the stockmarket are not just a feature of 2013 - it's been like this for years, and with ongoing financial uncertainty around the world, it's not going to change at any time soon.
- Commercial property has been in trouble for years - just visit the average high street or town centre and you'll see the dereliction for yourself.
- Holding cash in your pension fund is really bad news for any period other than a few days until you decide where you should invest it.
- That wonderful 'concept' of With Profits, peddled by the big insurance companies in late 20th century, should be challenged under the Trades Descriptions Act.
- Inflation can seriously damage your wealth.
And It Gets Worse
The figures in the table are the actual returns achieved in each sector. They don't take account the effect of charges imposed by your pension provider. This could be a big insurance company, or a SIPP or SSAS operator.
And they don't take account of any recurring fees you pay your adviser. That alone could wipe off a further 1% to 1.5% per year.
When you add it all up, it's no surprise at all that people are totally disillusioned about pensions.
If that's you, check out this secret.
Who's Making Money?
In reality, it's not much of a secret.
Lenders are making money.
At a time when stockmarkets don't know which way to turn, and bank and building societies are paying next to nothing on deposits, lenders are coining it.
If you can get a commercial loan from a bank, you'll be charged massively more than the 0.5% Bank of England Rate. Credit cards companies are presently charging from 18% APR, according to MoneySupermarket.
And don't start me off about PayDay Loan Companies including Wonga, which today quotes a mind-blowing 'Representative APR of 5853%'!
Imagine how fruitful your retirement would be if you could have Wonga build your fund for you. Sadly, that isn't going to happen!
How To Double The Returns On Your Pension Fund
Instead of investing all your money in volatile stockmarkets and non-performing deposit based investments, you could lend some of your money. There are plenty of businesses needing money right. And with the banks reluctance to lend, there's massive opportunities.
A SIPP is no more than a bank account, surrounded by a tax free wrapper. Subject to approval of your SIPP operator, who's there to control the bank account and ensure your pension is run properly, you could lend your money in a variety of ways.
You could grant specific loans to businesses, where you negotiate the rate. It's not unusual to be able to earn 10% or more.
You could lend your money via crowdfunding sites, though not all of them will accept SIPP money. One that does is Thincats.
If you grant specific loans, it's vital to keep in frequent contact with the business, to ensure your interest payments continue and you'll get your money back at the end of the term. If you don't have the time or inclination for this hands-on approach, there is another lending option.
Featured In Our Invest Area Are 'Loan Opportunities'
They are carefully selected opportunities to lend your money to established businesses, with great tracks records of paying high interest, and fully repaying your loan at the end of the term.
To protect your money, every one of them offers a first legal charge on property. So if things go wrong, 'bricks and mortar' will be sold to give you your money back. You don't get that level of protection with stockmarket investments, as shareholders in Comet, Woolworth and Barings among others know to their cost.
You'll earn between 8% and 15% per year. You lend directly to businesses. By cutting out the banks, you deprive them of their profits and their bankers of their bonuses. Instead, you share the spoils with the business.
Taking into account the effect of inflation, over the last five years, had you been a lender, you could have made at least double what you would have done had you invested in an average way in any of the above fund sectors.
Of course, no-one knows what the future holds. The stockmarket could earn you a fortune. But it's arguably a gamble whether it'll be higher or lower next month, let alone next year.
So build in some real predictability to your pension fund by lending your money, in return for regular high interest, contractually agreed when you set up the loan, and protected with security for your reassurance.
Here's a typical example - Dolphin Capital GmbH.
The full details of this lending opportunity and others are found in the SIPPclub Members Area.
Don't Leave Your Retirement To Chance
Open your 'virtual pension drawer'.
Then follow the smart money. Become a lender!
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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