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Nine out of ten UK pension funds get worse returns than a simple tracker following the FTSE All-Share index, new research has shown.
Analysis from AJ Bell found that 91% of UK pension funds have underperformed the returns of a FTSE all-share tracker, which mimics the performance of London’s wide-reaching 600-company index.
The majority of pensions have underperformed the index by well over 10%, with more than a third falling short by more than 20%.
The iShares UK Equity Index, which tracks the FTSE All-Share, has produced total returns of 73.7% including reinvested dividends and after accounting for annual charges, over the last 10 years. On the other hand, some pension funds have returns of below 50% in that time period, with the lowest being the Standard Life/Invesco Perp High Income 4 Pen fund at just 13%.
The pension funds fare better if compared to the FTSE 100, which has seen much slower returns over the last 10 years. However, they look even worse when compared to Wall Street’s S&P 500, which has posted returns of well over 200%.
The research comes amid questions of whether pension funds should invest more money in London-listed businesses and British growth firms. Figures from the ONS last December showed that just 4.2 per cent of listed UK shares are owned by pension and insurance funds— the lowest proportion on record.
Laith Khalaf, head of investment analysis at AJ Bell, says: “It’s pretty shocking that nine out of ten pension funds investing in the UK haven’t beaten a simple tracker fund over the last ten years. The magnitude of some of the underperformance is equally concerning. Almost three quarters of these funds underperformed by 10% or more, and over a third underperformed by 20% or more.
“This doesn’t look like a market which is serving consumers well, and yet tens of billions of pounds are invested in pension funds posting disappointing performance.”
A Standard Life spokesperson said: “We closely monitor the performance of our third-party managers and following a review of the UK Equity fund we took the decision to move away from the incumbent manager and strategy to a new strategy run on a multi-manager basis. The fund transitioned to the new strategy towards the end of last year and into the start of this year and we believe performance will improve as a result.
“The Invesco Perpetual High Income fund is widely available as a pension investment option through insurers and platforms. While the fund had previously struggled for a period, our review with the current managers concluded that they had implemented clear improvements to the approach to portfolio construction and in the fund’s holdings, and this has been borne out by its performance over the last couple of years.”
