Is your money stuck in a Zombie Fund?

There has been much talk about so called ‘zombie funds’ of late, with the Financial Conduct Authority launching an enquiry into them as part of a wider enquiry into the possible mistreatment of longstanding customers.

The pension and investment policies under scrutiny date back to the 1980s and, although the FCAs enquiry is focused on the high penalty charges that some of these policies incur if the investor wishes to move their money, this is not the only reason why ‘zombie fund’ customers should be concerned, particularly as many will now be approaching retirement.

What is a Zombie Fund?

The terminology may mean different things to different people but the general ethos is that many funds have lost direction and focus with some charging high fees to stay in and high fees to get out. Commonly these funds will be closed to new business and with no new money going into them, one could be forgiven for thinking that the fund managers have little incentive to produce a good return for their investors.

Pension Review Service

If you have a pension, and have had it for some time:

  • Do you know what it is invested in?
  • Do you know how it is performing?
  • Is the fund still suitable and does it reflect your attitude to risk?
  • Are you paying high charges?
  • In the event of your death, will the right people inherit the pension fund?

Our pension review service will answer these questions for you.

An example where our Pension Review Service has helped answer these questions:

Our client was 51 years old and intended to retire at the age of 65. He had arranged his pension in the early 1990’s at a time when he was self-employed. He had latterly become employed and joined his employer’s pension scheme at which point he stopped paying into his own personal pension. Since he started paying into his pension he had divorced.

As part of our Pension Review Service we talked to our client about his attitude to risk, expected retirement age and personal situation as well as his expectations from his pensions.

We made contact with his pension provider in order to establish the facts surrounding the plan and identified a number of concerns such as:

  • The pension fund had grown to ~£200,000 but was wholly invested in one fund.
  • We had assessed our client to have a medium risk approach but in isolation the investment fund was suitable for higher risk investors.
  • The nominated beneficiary, who would receive the pension fund should he die before retirement, was his ex-wife.
  • The selected retirement age, i.e. the age the provider was expecting him to take his benefits, was 55 as opposed to his expected retirement age of 65.

We considered a range of options including re-aligning the funds to reflect the client’s attitude to risk and diversification through selection of multiple funds. We established that the provider only had a few dozen funds available and many were unsuitable or unattractive.

One of the options was to transfer to a new Pension Provider and invest in a wide range of funds through an Asset Allocation Model suited to their risk profile. The overall charges were marginally higher than was being paid but the client felt that these were worthwhile given that he would receive a range of additional benefits including:

  • Funds that are monitored on a regular basis and switched if necessary;
  • Diversification by investing in a range of funds;
  • A regular review strategy that would facilitate changes to his situation and requirements;
  • Alignment of the pension to reflect his intended retirement age and overall retirement strategy.

As part of the process of arranging the new pension the client was able to set new beneficiaries. These people would receive the pension fund should he die before retirement.

If you’re concerned about the performance of your pension fund or you just want to check that your investment is performing as best it can, then get in touch with us today.

The value of your investments can go down as well as up, so you could get back less that you invested