Looking after number one

HOW TO PROTECT YOUR PENSION

l Set some time aside once a year to study exactly what is happening to your pension.

l Read pension statements carefully. If you don't understand something, ask.

l Request a range of financial data from the trustees to give you a better picture

l File all correspondence.

l Ensure your union or staff association takes an active interest in pensions and understands the issues.

ALL INVESTMENT is a risk, but just how big a risk should it be? That question could soon be answered in a High Court battle which threatens to place one of Britain's leading financial institutions in the dock for making a hash of managing a pension fund.

Unilever is now poised to begin the first case for compensation for pension-fund mismanagement. For more than a decade it has been embroiled in a row with Mercury Asset Management over the poor performance of a pounds 1bn chunk of its pounds 4bn fund.

Mercury, which has one of the best names in the business, was sacked in 1987 for failing to meet targets set by the manufacturing giant. If the current round of negotiations break down Unilever intends to take the matter to court.

The repercussions of any victory would send tremors through investment corridors and release a tidal wave of similar actions. Cash-rich employer pensions scheme would swoop on the courts with similar claims for damages.

But what can individuals do if they believe their pension is being short- changed? And how can they assess whether it is being efficiently managed in the first place?

Keeping tabs on your pension should be easier if you are a member of a company scheme. Investment considerations are an irrel- evance to the millions of employees whose pension is based on a proportion of their final salary. If the fund is badly managed, the employer will have to foot the bill.

However, if you are in a money purchase scheme, where your pension is based on the size of your pension fund, good investment per- formance is paramount.

Most employees should receive annual benefit statements. This is the opportunity used by well-run schemes with responsible trustees to dispense information about overall investment performance.

To help members digest this information, good schemes will list additional investment information which the employee can use as a yardstick for comparison purposes, such as the average achievements of funds in the sector or the rise in the FT 100 index. Employees should always study these carefully.

If a fund is doing badly, then they can demand the manager be sacked. Under the 1995 Pensions Act, trustees are responsible for monitoring a fund manager's performance. They must regularly study a plethora of performance league tables, published regularly by organisations such as Combined Actuarial Performance Statistics (CAPs), and if their manager falls below average over any sustained period, then they must take action, or leave themselves vulnerable to claims of negligence.

But employees should do their own homework, and not rely exclusively on the trustees judgement. And they need to consider a whole raft of data before reaching conclusions.

It is not enough to just look at what is happening to the average fund in a particular sector. It could be that in any given year all the funds did very well, artificially boosting the average. Alternatively, they might all have misread the warning signs on a particular economic story and universally performed abysmally.

Employees need therefore to compare fund performance with the general rise of relevant financial indexes such as the FT All Share. They also need to consider price inflation and wage inflation. If a fund has grown by 8 per cent, when inflation is at 2 per cent, that is quite a different result from a background of price rises of 6 per cent.

If, having done this research, employees feel that they have been shortchanged, then they can legitimately ask the trustees to sue the manager for compensation, or to change firms.

The position of personal pensionholders is much more problematic, because essentially they are on their own. They should receive documentation annually over the growth of their fund, but these communications, despite the drive for plain English, are often unintelligible.

Even where they are clear enough, there will be no comparative data. For that, the contract holder must either consult a financial adviser, or study the league tables contained in magazines such as Pensions Management, which can be bought at W H Smiths.

If the personal pension is a performance disaster, it is possible to switch to a new provider. But policyholders will pay all the costs of doing so. In the early years this could effectively wipe out most or all of the premiums paid in to date.