(Civil Service) Pension Performance

I have recently joined the civil service and I am in the process of evaluating which partnership pension provider/fund to go for.

I notice that the Fund performance and charge do vary quite a lot. I am a little stuck in the maths.

Given

1) annualised growh rates (which does not take into account of management charge) 2) Management Charge for each fund for each provider over 1, 3, 5, 10 years

how could I obtain an annualised growth rate that takes into account of the management charge?

I am in my mid twenties and I do not intend to stay in the civil service until I retire. As such, I am going for the parternship account, but I just wonder how I could take into account of this in choosing a provider/fund. Should I just go for a fund with maximum growth (taking into account of management charge), or should I go for one with the lowest charge (knowning that after I leave the civil service, if I leave the stakeholder pension account alone, I still need to pay management charge annually!).

What about going for the best performing funds (with higher management charge) for now and prior to leaving the civil service 'switch' to a provider with minimum charge, or is that completely silly?? I don't believe any providers allow "phasing" whilst switching to take into account of peaks/troughs in the funds being switched from/to??

Basically you just subtract the charge. Growth is exponential, and exponentials have the property that exp(a+b) = exp(a)*exp(b), so the management charge knocks off a constant factor regardless of the growth rate. Strictly speaking that only applies to continuous compounding (e.g. daily rates), but it's a reasonable approximation for annual rates. So a 1.5% annual charge will reduce the payout over 30 years by a factor 1.56 (1.015^30) regardless of what the payout is. There may be an initial charge, which also just reduces the total by that amount.

If you know which fund will have the maximum growth I'm sure lots of people would be interested! What you might choose to do is pick a fund which takes higher risks - you might expect that to produce higher growth on average, but obviously the risk means that you might also do badly. OTOH if you go for a low-risk fund (e.g. high-grade corporate bonds) you may find that it simply won't produce the return you need to get the level of pension you would like. You really need to do various projections of possible outcomes.

There is little evidence that higher-charging funds produce higher returns, so the way you phrase it is not the right way to think about it. The most important thing is to get funds with the investment policies you want/need, and then try to get the lowest charges. It may be a good idea to change, or at least review, your investment policy as you get older, but it probably doesn't make sense to try to decide now what you might do 10 or 20 years from now.