Trustnet Magazine Issue 34 November 2017 | Page 30

/ PLATFORMS & PENSIONS/
Every fraction of a percentage
point you can save in charges will
make a big difference to your
ultimate returns
Some basic maths – over 20 years,
£100,000 will grow to £265,330
assuming 5 per cent average growth
per annu m including charges. If
your charges are just 0.20 per cent
more (so your growth will be 4.8 per
cent per annum), your investments
after 20 years will be £255,403 –
almost £10,000 less. If you’re paying
an extra 0.6 per cent in charges,
the same portfolio will be worth
£236,997 or nearly £29,000 less.
It’s an industry mantra –
performance can’t be predicted, but
charges can, so do whatever you can
to keep these as low as possible.
When you are in retirement,
you will be taking money out each
month and additional charges will
exacerbate the depletion of your
pension pot, leaving less behind to
keep on accumulating.
In terms of a checklist when it
comes to entering drawdown, you
need to consider the following:
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•
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The overall cost of the funds
in your pension pot (check the
ongoing charges figure)
Whether it is cheaper to make
direct investments in your
portfolio rather than leaving
your money in a pension fund,
•
•
•
which may charge more
Additional costs, such as
platform fees, discretionary
management charges, or
financial advisory fees
Whether there are cheaper
funds (for example ETFs) that
can achieve the same results
as the current products in your
pension
The administrative cost of your
SIPP (if you are using one for
drawdown)
What you may find is that,
rather than using your original
pension fund manager, you can
achieve similar or better results by
managing your own pension fund
in drawdown. But use the checklist
above to ensure that any initial
savings aren’t swallowed up by
additional fees such as trading costs,
administration or platform fees.
Another important consideration
to think about is whether you will
actually spend the time needed to
manage your portfolio effectively
and have the necessary knowledge
to make informed decisions.
Although we have stressed the
importance of cost, it is pretty
irrelevant if you have picked some
poorly performing investments.
The other thing to bear in mind
is that – how shall we put this? –
sometimes people begin to lose their
“faculties” in old age, which may
have a bearing on their portfolio.
Finally, there are some new kids
on the block, alternately called
discretionary fund managers or
robo advisers. Discretionary fund
managers have been around for
decades, but historically, they have
been pretty pricey, rather exclusive
and have typically catered for the
top end of the market.
More recently, robo advisers have
sprung up with a technology-led
approach to help investors into
an appropriate portfolio to suit
their needs. This typically means
actively managed using exchange
traded funds, which come with
lower costs.
Although these offerings are
broadly similar to managing your
own investments, they benefit
from expert ongoing management,
which means you don’t have to
fret about rebalancing your own
portfolio.
This can be very useful if you
notice that you have started
walking into a room, but aren’t
quite sure why.
Investing is definitely a case
of horses for courses. There are
opportunities to make a few
mistakes while you are building
your portfolio, but in retirement
there is little margin for error.
Small mistakes, such as paying
too much in charges, taking out too
much cash early in retirement or
poor fund selection can accelerate
the depletion of your pension pot.
Remember you have a finite
amount of money, an increased
lifespan and few opportunities
to top up your pension pot in
retirement, so use it wisely.
Keep as much invested for as
long as possible, don’t overpay on
charges and if you’re nervous about
managing your own portfolio, why
not leave it to the experts? 
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