Your Pension Is Quietly Underperforming. A Financial Expert Explains The Hidden Reasons Why

Introduction: The Silent Anxiety of the Pension Statement

For many, opening a pension statement brings a familiar, nagging feeling. You see the contributions going in, but the growth on the statement feels sluggish, underwhelming, and confusing.

You might feel you’re doing something wrong or that this slow crawl is just "how pensions work." While this experience is common, the real reasons your pension may be underperforming are often hidden, counter-intuitive, and built into the very structure of the funds you're invested in.

This article reveals some of these surprising truths, based on insights from financial expert Alpesh Patel OBE, to help you understand what's really happening inside your retirement account.

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1. The "Small Gene Pool" Problem: Why Your Fund Manager Can't Pick the Winners

The core problem for many savers is that their pension funds deliver mediocre growth, often averaging around 5% per annum over several years. One of the fundamental reasons for this consistent underperformance can be explained by the "gene pool" analogy.

Many fund managers are not free to pick the best-performing companies from anywhere in the world. Instead, they are often restricted to buying from a small selection of large companies located in just a few specific geographic regions.

This artificially limits their options and dramatically reduces their chances of finding high-growth opportunities.

As Alpesh Patel explains, this approach is inherently flawed: It's a bit like saying I want to hire people for my new business only from a certain postcode as opposed to I'm going to pick the best people in the world and then narrow down to who are the best of the best.

This restriction makes it statistically unlikely for a fund manager to outperform a private investor who has the freedom to choose from a global "gene pool" of companies. By being forced to fish in a small pond, they are far less likely to land the biggest catch for your portfolio.

2. The Hidden Trap of "Layered Fees"

On top of lackluster performance, hidden costs can silently eat away at your pension returns. A prime example of this is a structure of "layered fees," which can be found in funds from large wealth providers like St James's Place.

Here is how your money can be subjected to multiple fees, often without your knowledge:

1. Your pension provider charges you a management fee for their main fund.

2. Unseen by you, that fund then invests your money into other internal funds.

3. Each of those underlying funds then charges its own management fee, which is taken out before the returns ever get back to the main fund.

This silent erosion from layered fees is a key reason why even a fund with decent market picks can end up delivering the lackluster 5% annual growth that leaves so many savers frustrated. You are unknowingly paying multiple layers of fees on the same pot of money, significantly depleting the growth of your investment over time.

3. The Illusion of Safety: Failing in Both Good and Bad Markets

https://www.youtube.com/watch?v=Cs3tJ7dr8xI

A common assumption among investors is that large, established pension funds provide stability and protection from market downturns.

However, the reality can be the opposite. Experts like Patel stress-test these funds by looking at their performance in downturns (like 2022), and the analysis often reveals a two-part failure that hurts investors in both good and bad markets.

1. Diluted Growth: The "small gene pool" problem has a direct impact here. Even when a fund holds a small position in a high-growth stock that performs exceptionally well (like Nvidia), the allocation is often so minimal that its impact on your overall portfolio is severely depleted.

For example, analysis of providers like Legal & General (L&G) can show that while the fund may technically own a "winner," your share of the winnings is too small to make a meaningful difference.

2. Poor Downside Protection: In a downward market trend, such as the one seen in 2022, these same funds often hold onto losing positions, failing to protect investors' capital. This means they not only miss out on significant gains during bull markets but also fail to provide the promised safety net during bear markets.

The irony is that investors believe they are in a "safe" fund, but it may be structured to capture minimal upside while remaining fully exposed to significant downside risk.

4. The Ultimate Takeaway: The Expert's Counter-Intuitive Advice

The primary goal of understanding these issues isn't to push you toward a different product, but to empower you with knowledge. Alpesh Patel’s motivation is rooted in a mission to educate, built on the foundation of his 18 books and a campaign to teach a million people worldwide how to invest.

His ultimate solution is not to find a "better" fund manager, but for individuals to learn how to take control themselves. This advice echoes one of the most respected investors in history:

Warren Buffett's advice was to learn how to do it yourself; he never said to give your money to a fund manager. That's the approach we teach as well: how to do it for yourself.

This is not abstract advice.

Patel’s own approach involves a clear strategy: looking for "undervalued companies with growth high dividend deals." This message is powerful because it shifts the locus of control from opaque financial institutions, with their hidden fees and restrictions, back to the individual.

Empowering yourself with the knowledge to invest directly is presented as the most effective path to achieving your financial goals.

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Conclusion: From Passive Saver to Empowered Investor

Your pension is likely one of the most important financial assets you will ever own, yet its inner workings are often a black box.

Understanding the hidden mechanics—from the "small gene pool" that restricts growth, to the layered fees that drain your returns, to the illusion of safety that fails to protect you is the first critical step toward taking control.

By peeling back these layers, you make a crucial mindset shift: you are no longer a passive "customer" of a financial product, but the active "owner" of your financial future.

Now that you know what to look for, what is the first question you should ask your pension provider?

⚠️ Disclaimer

Capital is at risk. Past performance is not indicative of future results. This article is for educational purposes only and does not constitute personal investment advice. Please do your own research and, if needed, consult a regulated financial adviser.

Alpesh Patel OBE www.campaignforamillion.com